We recently compiled a list of the Jim Cramer’s 10 Best Stocks to Buy After Fed Rate Cut. In this article, we are going to take a look at where Western Digital Corporation (NASDAQ:WDC) stands against Jim Cramer’s best stock picks.
In a recent episode of Mad Money, Jim Cramer observes that many on Wall Street enjoy going against the crowd, which is why some analysts downplay the significance of a half-point rate cut. He disagrees, asserting that common sense often gets overlooked by those who think they know better.
“Everybody on Wall Street loves to be a contrarian, which is why so many commentators keep trying to minimize the impact of a half-point rate cut. Not me! No matter what, common sense dictates that there are always people who think they know better than common sense, and they don’t. There are so few advantages to age, I have to tell you.”
Market Roars Back: Bears Get Played as Dow Surges 522 Points Amid Rate Cut Frenzy!
Jim Cramer points out the irony that, despite critics spreading negativity, the stock market soared today, with the Dow jumping 522 points, the S&P rising 1.7%, and the NASDAQ climbing 2.5%. He found it remarkable. Initially, bearish sentiment swayed the markets right after the announcement yesterday, causing many to panic and sell, particularly in tech stocks, which often face unwarranted hits from rate cuts.
Critics fueled this panic, echoing a negative narrative without questioning it, which led to a rush for the exits. Cramer emphasizes that this reaction to a rate cut, rather than a hike, creates a misleading panic, demonstrating how easily people can be misled into thinking a 50 basis point easing is bad news, which he believes is simply foolish.
“Funny thing: while these critics were polluting your minds, the stock market exploded today, with the Dow gaining 522 points, the S&P surging 1.7%, and the NASDAQ pole vaulting 2.5%. I’ve got to tell you, it was a thing of beauty. The Bears initially had their way with the markets, distorting a view immediately after the announcement at 2 p.m. yesterday. They fooled enough people to start blowing out of stocks in their frenzy, especially tech stocks, as if those are the ones that always get hit on a rate cut.
That’s just not true. There were also people who panicked, thinking the Fed was panicking. Commentator after commentator came on air, echoing this negative narrative out of nowhere. After all, who wants to go against the tide and question why sellers are streaming for the exits? You don’t want to be in the way of that. That’s how the aftermath of a rate cut—not a hike, but a cut—snowballs into a giant avalanche of people who have been instantly brainwashed into thinking that a 50 basis point easing is somehow bad news. That’s what we saw yesterday after 2:00. That analysis was absurd, just pure foolishness.”
50 Basis Point Cut Boosts Stocks and Housing
Jim Cramer notes that during a period of rate cuts, the potential winners are diverse and promising, while the losers are clear and should be avoided. He highlights that once the Wall Street Journal announced the possibility of a 50 basis point cut, the range of stocks that could benefit significantly widened. A smaller 25 basis point cut would have helped homebuilders if they increased construction, but they’ve been hesitant due to still-high rates. However, a 50 basis point cut will lead to lower mortgage rates, making homes more affordable and likely boosting the housing market.
“The winners in an easing cycle are varied and exciting, while the losers are obvious and must be avoided. From the moment the Journal reported that there could be a 50 basis point cut, the swatch of what can go higher expanded dogmatically. A 25-point cut would have been truly beneficial for homebuilders if they would just start building a lot more homes, that’s something they’ve been reluctant to do because rates are still too high. But a 50 basis point cut means lower mortgages for certain and, therefore, more affordable homes.”
Our Methodology:
In this article, we review the latest episode of Jim Cramer’s Mad Money where he discussed several stocks. We have ranked the companies according to their popularity among hedge funds, starting with the least owned and progressing to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A data center filled with racks of hard disk drives and solid state drives.
Western Digital Corporation (NASDAQ:WDC)
Number of Hedge Fund Investors: 80
Jim Cramer notes that Western Digital Corporation (NASDAQ:WDC)’s stock has historically outperformed in the three months following the first interest rate cut. However, he cautions that Western Digital Corporation (NASDAQ:WDC), a manufacturer of hard drives and solid-state drives, has often been considered a value trap.
“Western Digital is up over 20% on average in the three months following the first rate cut. This maker of hard drives and solid-state drives, basically storage for your phone or PC, has historically been a giant value trap. Right now, we’re seeing an uptick in demand for storage as part of the AI data center theme.”
Western Digital Corporation (NASDAQ:WDC) is poised for continued growth, driven by the increasing demand for storage solutions in response to the rapid expansion of data generation, cloud computing, and AI applications. As data centers expand and more devices require storage, Western Digital is well-positioned to capitalize on these market trends and gain market share.
In its Q2 2024 earnings report, Western Digital Corporation (NASDAQ:WDC) reported about $4.5 billion in revenue, showing significant year-over-year growth. Improved gross margins resulted from effective cost management and increased demand for higher-margin products like SSDs. Western Digital Corporation (NASDAQ:WDC)’s commitment to innovation is clear in its substantial investments in research and development, leading to advancements in flash storage technology and new next-generation SSDs that meet industry demands for faster, more efficient solutions.
Strategic partnerships with major cloud service providers are expected to boost revenue and secure long-term contracts, enhancing financial stability. Additionally, Western Digital Corporation (NASDAQ:WDC) maintains a strong balance sheet with manageable debt and ample liquidity, allowing it to handle market fluctuations effectively. Recent plans to improve manufacturing capabilities, especially in 3D NAND technology, along with sustainability initiatives, may also appeal to environmentally-conscious investors.
Parnassus Mid Cap Fund stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
Overall WDC ranks 4th on our list of Jim Cramer’s best stocks to buy after Fed rate cut. While we acknowledge the potential of WDC as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WDC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.