We recently compiled a list of the 8 Stocks on Jim Cramer’s Radar. In this article, we are going to take a look at where Ford Motor Company (NYSE:F) stands against the other stocks.
Jim Cramer, the host of Mad Money, recently shared some investment guidelines based on his 40 years of experience. As we previously discussed in our article, Jim Cramer Talked About These 8 Stocks, Cramer emphasized that both bulls and bears can profit, but greed leads to losses, advising investors to take profits and avoid being overly greedy. His second rule is that paying taxes is acceptable. Finally, Cramer stressed the importance of not making large, all-at-once buys or sales, recommending gradual adjustments to positions instead.
In addition to these guidelines, Cramer’s next rule was to recognize the importance of distinguishing between damaged stocks and damaged companies. He explained that buying stocks from companies that are fundamentally flawed is a mistake with no chance of recovery, but stocks of companies that are simply experiencing temporary issues may present a buying opportunity. This distinction is critical because, as Cramer pointed out, there’s no “money-back guarantee” when buying into a company with long-term problems.
Investors should focus on finding stocks that are down for reasons that aren’t related to poor company fundamentals. Cramer then moved on to his next rule, which is to always do the relevant homework.
“If you want to build a portfolio of individual stocks, that’s a big if since there’s nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the S&P 500, well, you gotta be rigorous about it. Which brings me to my next rule: Do the homework.”
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Cramer said that doing the homework means more than just picking stocks based on a gut feeling; it involves actively researching companies by listening to earnings calls, reading research reports, and staying on top of the news. Cramer noted that some investors dismiss this kind of work, seeing it as unnecessary or outdated in today’s fast-paced world. However, he was clear in his belief that failing to do proper research before buying stocks is foolish and can lead to poor investment choices.
Cramer further emphasized that doing homework today is easier than ever. With so much information available on the internet, there’s no excuse for not gathering as much data as possible. For those who don’t have the time or inclination to dive deep into individual stocks, Cramer suggested that index funds are a great alternative. Another crucial rule that Cramer continually stresses is the importance of diversification.
“The next rule is another essential that I harp on constantly: Diversify, diversify, and diversify. Always be diversified, that controls risk, and managing risk is really the holy grail of this business. What’s the biggest risk out there? It’s called sector risk.”
Sector risk refers to the potential for a specific sector of the economy to lag, which can result in negative impacts on investments within that sector. Cramer explained that sector risk is one of the most significant dangers to an investment portfolio, and diversification is the only way to protect against it.
He frequently says that “diversification is the only free lunch in this business” because it’s the one investment principle that benefits everyone. As per Cramer, by mixing different sectors in a portfolio, at least five according to him, investors can prevent themselves from suffering catastrophic losses if one particular sector takes a hit.
“Here’s the bottom line: Whether you’re an amateur or professional, you always need to do your homework and keep your portfolio diversified. This is the kind of routine maintenance that protects you from monster losses down the line. Remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. But don’t try to rationalize those losses because stocks don’t always come back to even or anywhere near that.”
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episodes of Mad Money. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 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 Ford truck roaring down a highway, with powerful headlights blazing its way.
Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 36
Cramer touched on Ford Motor Company’s (NYSE:F) warranty issues and the company’s disappointing third-quarter results.
“It is a great American company, but it does have warranty problems that I think are gonna come back to haunt it. And I had to sell for the Charitable Trust because it just kept missing the quarter and that’s no way to run a stock. Maybe a car company but not [a] stock.”
Ford (NYSE:F) is involved in the development, production, and servicing of a wide range of vehicles, including trucks, commercial cars, vans, SUVs, and luxury Lincoln models. The company has prioritized addressing its quality issues since 2020. As part of these efforts, it has made changes to its production processes, introducing measures aimed at better identifying errors and allocating additional workers to spot safety concerns.
Despite these efforts, the company has led the industry in recalls since 2021. Warranty costs have continued to weigh heavily on Ford’s earnings this year. In its second-quarter results, the company reported a $800 million increase in warranty expenses compared to the same period in the previous year, mainly due to issues with vehicles launched in 2021 or earlier. During the third quarter, management noted that high warranty costs were affecting the company’s ability to reach record adjusted EBIT for the year.
However, as reported by Reuters, CEO Jim Farley stated that after three years of focused efforts to address all of the company’s deficiencies, the company now has everything in place to improve its quality for both customers and the business. This statement came as the company continues to make progress in its efforts to improve quality.
On December 18, Ford (NYSE:F) confirmed the appointment of a new head of quality, with the change expected to take effect in early 2024. This move is designed to allow Ford’s teams to collaborate more efficiently and deliver vehicles and software with the highest quality for customers.
Overall F ranks 5th on our list of stocks on Jim Cramer’s radar. While we acknowledge the potential of F 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 F 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.