We recently compiled a list of the Jim Cramer’s Latest Lightning Round: 10 Stocks to Watch. In this article, we are going to take a look at where Diamondback Energy, Inc. (NASDAQ:FANG) stands against the other stocks to watch according to Jim Cramer.
The host of Mad Money, Jim Cramer, shared his insights on the persistent issue of inflation. He emphasized that companies need to lower their prices to entice consumers in today’s economic climate. Cramer pointed out the hesitation many companies exhibit in reducing prices.
Cramer said:
“Companies are so reluctant to take prices down because they don’t want to hurt their treasured gross margins but I think it may be time for a giant reset.”
While prices may have stabilized and no longer surged as they once did, Cramer warned that this does not imply they are decreasing. He believes many companies are failing to recognize the necessity for price rollbacks.
He gave a few examples from the liquor industry, where some producers have said that declining sales shifts are because of consumer preferences toward healthier lifestyles rather than acknowledging high prices.
Cramer went on to say:
“Funny enough, if you keep prices low, you can indeed make it up in volume because the consumer is a lot smarter than some of these companies are ever willing to admit.”
Cramer mentioned that both consumers and Wall Street are responding positively to companies that have opted for discounts or price reductions. He talked about the decision by McDonald’s to extend its $5 value meal, which has successfully attracted lower-income customers, and it led to an increase in its stock value.
Cramer mentioned that giants like Amazon, Costco, and Walmart have seen substantial stock gains this year. Cramer believes that businesses willing to reduce prices can compensate for their margins through increased sales volume.
Cramer speculated:
“I think we’ll look back on 2024 as the year when consumers took matters in their own hands and actually said no to inflated prices.”
He warned that companies that fail to adapt may face dire consequences, including leadership changes and plummeting stock prices. Talking about the consequences, he said:
“The result? Fired CEOs and crushed stock prices for all those who refused to heed the thunder, the thunder of those angry consumers who finally just said no to the scourge of inflation.”
Our Methodology
For this article, we compiled a list of 10 stocks that Jim Cramer talked about during the lightning rounds of his Mad Money episodes on October 1 and 2. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in 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 pipeline worker overseeing the flow of crude oil into storage tanks from an integrated water system.
Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 44
Diamondback Energy, Inc. (NASDAQ:FANG) is an independent oil and natural gas company, primarily engaged in the acquisition, development, exploration, and exploitation of unconventional onshore reserves within the prolific Permian Basin of West Texas.
The company concentrates its efforts on the Spraberry and Wolfcamp formations in the Midland Basin, as well as the Wolfcamp and Bone Spring formations in the Delaware Basin, extending its reach into New Mexico. In addition to its upstream activities, it also manages midstream infrastructure assets located in both the Midland and Delaware Basins.
When asked about the company, Cramer said “Diamondback’s a little too much oil for me”.
In October, Diamondback Energy (NASDAQ:FANG) provided an update regarding its production and capital expenditure expectations for the third quarter of 2024, which contained adjustments resulting from its merger with Endeavor Energy Resources, L.P., finalized on September 10.
The merger is anticipated to allow the company to achieve operational efficiencies, cut costs through the elimination of overlapping rigs, and optimize production methodologies.
Previously, Endeavor has emphasized rapid production growth, which has contributed to the swift depletion of its resources in the highly productive Midland Basin. The good news is that Diamondback Energy (NASDAQ:FANG) is committed to generating free cash flow, which positions the newly merged entity to moderate production levels and prolong the viability of its high-quality assets.
For the upcoming quarter, the company projects oil production to fall between 319,000 and 321,000 barrels per day, while total production is expected to range from 565,000 to 569,000 barrels of oil equivalent per day. It has also set a cash capital expenditure guidance of $675 million to $700 million for Q3 2024.
Diamond Hill Capital stated the following regarding Diamondback Energy, Inc. (NASDAQ:FANG) in its first quarter 2024 investor letter:
“Though valuations have increased, we continue identifying high-quality companies we believe the market is overlooking. We accordingly initiated four new positions in Q1: Generac Holdings, Diamondback Energy, Inc. (NASDAQ:FANG), Johnson Controls International and Humana. FANG is a scaled, low-cost energy exploration and production company in one of the US’s most prolific shale basins. The company focuses on cost efficiency and prudent, sustainable management of its assets, and we believe the company is well-positioned for free cash-flow generation over the long term. Further, we have confidence in the management team, which we believe is well-aligned with shareholders. We initiated a position in FANG at a compelling price relative to our estimate of intrinsic value in February, just ahead of the company’s announced and attractive acquisition of Endeavor.”
Overall FANG ranks 3rd on our list of the stocks to watch according to Jim Cramer. While we acknowledge the potential of FANG as an investment, our conviction lies in the belief that 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 FANG 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.