We recently compiled a list of the Jim Cramer is Talking About These 12 Stocks. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) stands against the other stocks Jim Cramer is currently talking about.
On Tuesday, Jim Cramer, the host of Mad Money, analyzed the day’s market activity, shedding light on why some Big Tech stocks gained traction while others struggled. He pointed out that investors are increasingly concerned about the broader economic effects of rising bond yields. Cramer began by questioning how a day could unfold where recent market leaders lose their momentum, prompting money managers to shift back to established favorites like Big Tech.
Cramer acknowledged his growing worry about the bond market, noting that since the Federal Reserve cut rates last month, bond prices have plummeted.
“… Ever since the Fed cut rates last month, right, bond prices have plunged. Bond yields, meaning longer-term interest rates, have soared. Not supposed to happen. But when it does happen, money managers reach for the companies that simply aren’t impacted by the change in the 10-year, the 20-year, or the 30-year US Treasurys.”
Cramer likened Wall Street to Chinatown, suggesting that sometimes, it defies easy understanding. He remarked that people seem to abandon the market’s recent winners in a snap as if discarding hot fries. He then explained that the day’s disappointing earnings reports created confusion, as they didn’t align with the prevailing narrative of strong employment alongside rate cuts.
“See, this morning we got a series of earnings reports that just didn’t add up. They didn’t fit the thesis. They were disappointing. They don’t jive with a rather benign moment when we have the Fed cutting rates, yet employment remains strong. When we get these problematic quarters, several in one day, I might add, money managers default back to the tried and true growth stories that we all know and love. Yes, Titans of Tech. You know what? These managers can’t help themselves. They feel they have to rotate out of what was hot at one point and into something else that’s not that impacted by the big rate-cut cycle.”
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He addressed the “alleged earnings disappointment,” clarifying that he chose the term “alleged” because he holds these companies in high regard and does not want to undermine their reputations. Cramer stated that when the 10-year Treasury yields rise, money flows back to these tech giants. He noted that on days like Tuesday, large investors often become apprehensive about cyclical stocks, with concerns about various sectors like aerospace, home building, and even auto parts.
He reassured viewers that this phenomenon is familiar; it has been a recurring theme for over a decade. Cramer suggested that money could just as easily rotate back to previous favorites, but it might take a day or two for that to happen, which shows the volatility of the current market environment.
Concluding, Cramer noted that Big Tech experienced a significant resurgence. He remarked:
“But the bottom line, Big Tech made a big comeback today because of the bond market, not anything to do with the stocks themselves. So, keep in mind that the pause in the rally is temporary, even as you should still own some of the Magnificent Seven for diversification.”
Our Methodology
For this article, we compiled a list of 12 stocks that were discussed by Jim Cramer during his episode of Mad Money on October 22. 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).
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Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
During the episode of Mad Money, Cramer acknowledged that he left out Tesla, Inc. (NASDAQ:TSLA) for a “good reason”. Referencing his “own it, don’t trade it” philosophy, he said:
“Tesla, eh. It’s a car company so it’s genuinely sensitive to the bond market. No, thank you. They actually have an interest rate concern now that we don’t think about them as a robot company.”
Tesla (NASDAQ:TSLA), renowned for its electric vehicles, is currently facing a difficult landscape in the automotive sector. Recent shifts in consumer preferences show a growing inclination towards more affordable gas-powered vehicles, a trend influenced by economic factors such as higher interest rates. The company released its third-quarter 2024 report on October 23, which illustrated both positive developments and ongoing challenges.
The report indicated an 8% rise in total revenue, reaching nearly $25.2 billion, with significant contributions from the energy generation and storage divisions. However, the company also experienced tightening margins due to competitive pressures and external cost challenges. In terms of vehicle performance, the company achieved an increase in deliveries of the Model 3 and Model Y. Additionally, production of the Cybertruck improved sequentially, marking its first quarter of profitability.
Despite these achievements, Tesla (NASDAQ:TSLA) confronts various hurdles. Automotive gross margins are strained by aggressive pricing strategies and escalating input costs. Furthermore, regulatory investigations into the safety of its Full Self-Driving (FSD) software add another layer of concern. The company recognizes the shift in consumer sentiment and capital cost factors, shaped by broader economic conditions.
Overall TSLA ranks 8th on our list of the stocks Jim Cramer is currently talking about. While we acknowledge the potential of TSLA 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 TSLA 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.