We recently compiled a list of the Jim Cramer’s 10 Stock Picks That Could Change Your Investment Game. In this article, we are going to take a look at where Wells Fargo & Company (NYSE:WFC) stands against the other stocks that could change your investment game according to Jim Cramer.
Tech Stocks Shine When Rates Are High but Struggle After Rate Cuts, Says Cramer
In a recent episode of Mad Money, Jim Cramer points out that tech stocks often perform well when the Federal Reserve maintains high interest rates and the economy slows down. However, when the Fed cuts rates, as it did recently, Wall Street shifts its focus to companies that can show significant earnings growth due to these lower rates. This may seem confusing, but in the stock market, cash is limited, and it’s currently flowing into companies that would struggle without the rate cuts. While many stocks initially rose after the cut, they couldn’t maintain those gains, leading to a market decline.
“The thing is, these tech stocks tend to be winners when the Fed keeps rates high and the economy slows. But when the Fed slams on the accelerator, as it did today, Wall Street bands together and piles into the companies that can post big earnings gains with much lower interest rates. Now, that may sound strange to you. Obviously, the real world makes no distinction between a company that does well all the time and one that does extremely well some of the time.
However, in the crazy world of the stock market, we only have so much cash to go around, and right now, it’s flowing into companies that would have been doomed in a world where the Fed didn’t start cutting rates. These companies have stocks that are much prized right now, so the money funnels into them. Everything else went up but couldn’t stay up after the rate cut. These did stay up; unfortunately, there aren’t enough of them to allow the averages to close in the black. That’s why we close in the red.”
Cramer questions whether all tech stocks are now weaker and suggests that not every company will suffer the same fate. He believes there are still standout stocks in the tech sector that can thrive regardless of economic conditions, even if they don’t perform well on days when the market dips. These companies help larger businesses operate more efficiently, and there’s always a demand for that kind of support, indicating that some tech players will continue to shine.
“So, is every player doomed to the same small part? Are the stocks of all tech companies weaker now? Can nothing transcend that status? Like when I went out for Bye Bye Birdie or Guys and Dolls in high school, I mean, first, no publicly traded company would ever be that low. I was totally expendable, other than as Lieutenant Rooney in ARS Gold Lace, where I don’t think I ever spoke more than a few words.
But there will be stocks that shine even in tech with rates coming down. However, we come out here to find legitimate stars that can thrive regardless of the economy, and they don’t do that well on days like today. Many of these outfits are about helping big companies do more with less, and there’s always demand for that. They’re not big players; you bring in these guys to bridge the gap and perform better with fewer people.”
Jim Cramer: Artificial Intelligence (AI) Drives Profit Growth Despite Slowing Sales
Jim Cramer also highlights that artificial intelligence is a crucial factor in today’s market. Companies using AI can enhance their profit margins, increasing earnings even amid declining sales. This indicates that AI can drive profitability without needing to boost sales.
Our Methodology
This article summarizes Jim Cramer’s latest Mad Money episode, in which he analyzed several stocks. We selected 12 companies and ranked them by their ownership levels among hedge funds, beginning with those that are least owned and moving to those that are 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 team of bankers in suits, discussing the success of the company’s banking products.
Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Investors: 83
Jim Cramer expressed confidence in Wells Fargo & Company (NYSE:WFC), describing it as a strong performer. He acknowledges the concerns many have but emphasizes his trust in CEO Charlie Scharf, comparing him to a skilled coach who knows how to navigate tough situations. Cramer believes Wells Fargo & Company (NYSE:WFC) will continue to succeed and expects its stock to rise further, potentially reaching the $61-$62 range. He encourages investors to hold on to their shares and appreciates their membership in his investment community.
“Well, Wells Fargo is a winner, though. Okay, let me tell you, I hear you and I feel exactly what you’re feeling, but I am a believer in Charlie Scharf. He happens to be a head coach who knows exactly what to do with two minutes and one minute left. He would never be fooled by what you saw on the field that Monday night. I think Wells comes through this fine; it’s up 10%, and I think it’s going to go higher. It can go back to 61-62. Let’s hold on to it. Thank you for being a member of the club!”
Wells Fargo & Company (NYSE:WFC) has a positive outlook, supported by its strong Q2 2024 earnings that exceeded expectations due to solid growth in net interest income and lower loan loss provisions, which indicate improving credit quality and a favorable interest rate environment. Wells Fargo & Company (NYSE:WFC)’s focus on cost efficiency and operational improvements is expected to enhance profit margins and overall financial performance.
With a robust balance sheet marked by strong capital and liquidity, Wells Fargo & Company (NYSE:WFC) is also working on improving asset quality and reducing non-performing loans, which boosts investor confidence. Additionally, Wells Fargo & Company (NYSE:WFC) is diversifying its revenue by strengthening its wealth management and investment banking divisions, reducing its reliance on traditional lending.
As the economy continues to recover, Wells Fargo & Company (NYSE:WFC) is well-positioned to benefit from increased lending activity, and potential rising interest rates could further improve its net interest margins. Recent updates about regulatory approvals and initiatives to restore Wells Fargo & Company (NYSE:WFC)’s reputation have also positively affected market sentiment, creating a strong outlook for the company.
Overall WFC ranks 5th on our list of the stocks that could change your investment game according to Jim Cramer. While we acknowledge the potential of WFC 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 WFC 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.