Jim Cramer, the host of Mad Money, recently delved into the complexities of disappointing quarterly earnings, emphasizing the importance of transparent communication from management. He pointed out that during each earnings season, evaluating companies can vary significantly in difficulty. Cramer remarked that when grading these results, investors seek clarity and simplicity, wanting reports that are easy to understand rather than muddled and confusing.
Last Wednesday, Cramer posed a thought-provoking question, noting that while stocks have the potential to generate substantial profits, the recent earnings reports have made it clear that not all results are straightforward.
Cramer likened the reporting process to navigating a complicated landscape where quick, headline-driven summaries often fail to capture essential nuances, which can lead to significant misunderstandings and even crises in interpretation.
He explained that many companies faced a series of challenges in their earnings reports, asserting that every disappointing quarter has its unique characteristics, complicating the assessment process. Cramer illustrated this by comparing the situation to a criminal trial, where a defendant who is clearly guilty but refuses a plea deal might face severe consequences. He emphasized that for CEOs, acknowledging mistakes is crucial; failing to address poor results could lead to a perception that they do not take the reporting process seriously.
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during the episode of Mad Money on October 30. 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).
Number of Hedge Fund Holders: 31
Cramer commented that one of his favorites, Wingstop Inc. (NASDAQ:WING) did not report its usual solid quarterly earnings. Here’s what he said about the results and the reaction of the market to them:
“Finally, there are the unhappiest of shortfalls, the ones that management simply refuses to acknowledge, either because they’re in a state of denial or they’re full of it. And that’s what I thought as I read the conference call for Wingstop… one of my favorites. Every quarter they give you an Acme dynamite set of earnings and a rosy forecast, sensational same-store sales. Today though, Wingstop dwelled on the good, not blowout, same-store sales and didn’t even mention the out and out earnings shortfall. 88 cents, looking for 96. Funny thing about Wall Street, the only thing it hates more than a big miss is when management tries to pretend the big miss didn’t happen. Hence why Wingstop plunged 21% today.”
Wingstop (NASDAQ:WING) is a restaurant franchise that operates under the Wingstop brand, specializing in classic and boneless wings, tenders, and chicken sandwiches, all hand-sauced and tossed in a variety of flavors. The company promotes itself as “The Wing Experts” and employs an asset-light franchise model.
As of September 28, the company has established a presence with 2,458 restaurants globally, including 2,120 locations in the United States. Of these, 2,064 are franchised, while 56 are company-owned. Internationally, there are 338 franchised restaurants in various markets.
For the fiscal third quarter, the company reported revenue of $162.5 million, marking a significant increase from $117.1 million the previous year, a growth of 38.8%. The net income for the same period reached $25.7 million, a rise of 31.9% and diluted EPS stood at $0.88. The company’s system-wide sales also saw a considerable boost, rising by 39.4% to $1.2 billion. Despite these impressive figures, rising input costs, particularly related to bone-in chicken wings, led to an increased cost of sales, which reached 77.8%.
On October 31, BMO Capital lowered the price target on Wingstop (NASDAQ:WING) to $335 from $360 and maintained a Market Perform rating. As per the firm, the company’s third-quarter earnings per share fell short of expectations due to slightly weaker comparable store sales, diminished restaurant margins, and increased general and administrative costs.
The firm added that although the current business momentum for the company remains strong and its long-term outlook is positive, concerns about decelerating comparable sales may impact share performance until there is clearer stabilization in the market.
Number of Hedge Fund Holders: 39
Cramer commended Reddit, Inc.’s (NYSE:RDDT) third-quarter results and credited the stock gaining to its “profitable quarter”.
“Ideally, we hope for companies like Reddit, our guest last night. Wall Street was expecting it to be a money loser with little growth. Instead, we got a highly profitable quarter with a modest growth. And that’s why the stock’s soared 42%.”
Reddit (NYSE:RDDT) operates a dynamic platform that fosters the creation and engagement of digital communities centered around diverse interests, allowing users to participate in discussions and share various types of content. The company reported its Q3 results on October 29 and the stock has been up over 38% since then, as of November 1.
The company exceeded Wall Street expectations by reporting earnings that showed substantial growth. It achieved revenue of $348 million, which showed a remarkable year-over-year increase of 68%. This performance resulted in a positive earnings per diluted share of $0.16, a significant turnaround from a previous net loss of $0.13. User engagement on Reddit has also seen considerable growth, with active user counts increasing by 51% in the U.S. and 44% in international markets.
Reddit (NYSE:RDDT) management attributed this surge in part to advancements in machine translation, which has led to four times the incremental growth in daily users. The company plans to extend this technology to additional countries, which is expected to further drive user engagement. Additionally, the average revenue per user (ARPU) grew by 14% globally, contributing to a 56% boost in worldwide advertising sales, which remains the primary driver of the company’s growth.
In a notable development, the company’s smaller revenue category, labeled “other revenue,” experienced a dramatic increase of 547%, primarily fueled by the expansion of its artificial intelligence business. This segment includes data licensing partnerships that have become increasingly significant. During the earnings call, COO Jen Wong highlighted that the company licenses its user data to facilitate advertising analytics and to assist in training large language models (LLMs) and other AI systems.
Number of Hedge Fund Holders: 100
On Wednesday, talking about his favorite, Eli Lilly and Company (NYSE:LLY), Cramer expressed disappointment with the company’s recent earnings report. Here’s what Mad Money’s host had to say:
“Then there’s Cramer fave, Eli Lilly. Here’s the stock that’s been almost as hot as Nvidia. It’s up 45% for the year, even after today’s hideous 6.2% collapse. Given how much Lilly had run into the quarter, we needed to see some extraordinary numbers from the revolutionary GLP-1 drugs for diabetes and weight loss, right?… And we also needed them to raise their forecast dramatically, but we got nothing like that. Instead, Lily reported a clear miss, a real whiff. And the explanation for it was totally opaque. I’m still trying to figure out what the heck happened. Was it too much supply? Too little demand? Stock finished about $56. One point, it was down a hundred. Talk about an unhappy forecast.”
Eli Lilly (NYSE:LLY) is a prominent global pharmaceutical company dedicated to transforming diabetes care and addressing obesity and its serious long-term effects. A shining star in its product line is Zepbound, a new treatment for obesity that activates specific hormone receptors, offering a fresh approach in this therapeutic area. Another significant product is Mounjaro, the first approved medication for type 2 diabetes targeting these same receptors, utilizing tirzepatide as its active ingredient. These medications, also known as GLP-1 agonists, function by activating receptors for hormones released after eating, helping individuals feel fuller.
In the third quarter, the company reported sales of $11.44 billion. The company noted that U.S. sales for both Mounjaro and Zepbound were adversely affected by a decrease in inventories within the wholesaler channel.
During the Q3 earnings call, CFO Lucas Montarce explained that wholesalers had reduced their inventories of diabetes and obesity drugs during the quarter, describing it as a temporary issue. He emphasized that demand for Mounjaro and Zepbound remains strong and continues to grow. CEO David Ricks also highlighted a 25% increase in U.S. prescription volume for these medications from the second to the third quarter.
For 2024, Eli Lilly (NYSE:LLY) anticipates a non-GAAP EPS between $13.02 and $13.52, having previously forecast a full-year non-GAAP EPS of $16.10 to $16.60. This adjustment is primarily related to the acquisition of Morphic Holdings, which impacted in-process research and development charges by $3.09 billion, or $3.33 per share. For the third quarter, these charges amounted to $2.83 billion, or $3.08 per share, mainly associated with the Morphic Holdings acquisition.
Number of Hedge Fund Holders: 108
Cramer remarked that Advanced Micro Devices, Inc. (NASDAQ:AMD) performed well enough in its third quarter but not exceptionally well while highlighting the company’s difficulties with supply chain constraints.
“Now, we’re trying to buy it for my Charitable Trust. Last night, AMD reported an extraordinary quarter, numbers I could never have imagined a year ago, two years ago. Back then, I would’ve thought that making $2 billion in artificial intelligence chips would be incredible and now it looks like they’ll do $5 billion. But traders don’t care about the quarter, that’s now in the rearview mirror. Do they? They care about the next quarter and the next 12 months for that matter. And on that basis, AMD did well, but not well enough.
Advanced Micro Devices (NASDAQ:AMD) is a prominent player in the semiconductor sector, recognized for its innovative processors and graphics solutions that cater to a wide range of applications, including personal computers and data centers. Competing with major companies like Intel and Nvidia, it operates through key business segments such as Client, Data Center, Gaming, and Embedded, with a strong emphasis on high-performance and adaptive computing technologies.
It should be noted that during the earnings call, Advanced Micro Devices (NASDAQ:AMD) CEO Lisa Su discussed the ongoing challenges in the supply chain environment, commenting that the company has effectively managed its capacity. She acknowledged that while supply tightness is expected to persist in the upcoming quarters, the company has outlined plans for significant growth heading into 2025.
For the fourth quarter, the company expects revenue to be around $7.5 billion, with a possible variance of $300 million, indicating a projected growth of 22% at the midpoint.
Additionally, the company has revised its full-year GPU data center revenue forecast from over $4.5 billion to now exceeding $5 billion. Looking toward 2025, the company remains optimistic about continued growth in the data center segment, driven by substantial investments from companies aiming to expand their infrastructure for AI workloads. The company also mentioned that customers are increasingly diversifying the workloads they run on its GPUs.
Number of Hedge Fund Holders: 216
During last Wednesday’s Mad Money episode, Cramer acknowledged that he did not have many expectations from Alphabet Inc. (NASDAQ:GOOGL) previously but highlighted that its recent quarterly earnings report reminded him of the “old Google”.
“Alphabet defines the happy beat and raise. This stock had been the laggard in the Mag 7. Nobody expected much from it at all, I didn’t. I mean we own it for the trust, but I didn’t. The company has a really bad habit of giving you a muddled message even when it’s doing well.
Alphabet (NASDAQ:GOOGL) provides a wide range of products and services through its segments, including advertising, cloud services, communication tools, and various platforms like YouTube and Google Play, catering to both consumer and enterprise needs. As per Statcounter Global Stats, Google Search holds the primary position among search engines as its market share is 89.33%.
In the third quarter, Alphabet’s (NASDAQ:GOOGL) Google Cloud achieved significant revenue growth of 35%, reaching $11.4 billion. The company noted that customers are increasingly adopting its AI platform for building and customizing models, with the Gemini model gaining notable popularity. Management highlighted the success of its data platform BigQuery, alongside AI-driven cybersecurity solutions like Google Threat Intelligence and Security Operations, which have expanded the company’s application portfolio.
In addition to cloud services, Google Search has also shown strong performance, with revenue rising over 12% to more than $49 billion. The company noted particular strength among financial services providers, including insurance companies, and retailers. AI capabilities are helping the company gain deeper insights into user behavior, allowing for better connections between users and advertisers.
Meanwhile, YouTube has achieved significant milestones, with total ad and subscription revenues exceeding $50 billion over the past four quarters for the first time, driven by offerings such as YouTube TV, NFL Sunday Ticket, and YouTube Music Premium.
Number of Hedge Fund Holders: 219
Cramer delved into Meta Platforms, Inc.’s (NASDAQ:META) third-quarter earnings report that was released on October 30. Here’s what he had to say about it:
“Meta stock instantly plunged about 20 bucks when it reported because there was no beat and raise lingo. Remember we like that stuff spoon-fed because we’re lazy. I had to bat this one around for a while with the crew because there are puts and takes to the guidance. That’s another technical term, puts and takes… And I still can’t be sure that it should be down so much. It’s coining money for heaven’s sake. Again, hard to pin down. A non-beaten, non raiser that made the numbers.”
Meta (NASDAQ:META) is a global leader in connecting people through a variety of products that allow for sharing and interaction on mobile devices, personal computers, virtual reality headsets, and wearables. The company boasts an audience of 3.29 billion daily active users across its platforms. The majority of its revenue comes from selling advertising space to businesses looking to reach this extensive audience. As users engage more with platforms like Facebook and Instagram, the number of advertisements they encounter increases, driving revenue growth.
In Q3, Meta’s (NASDAQ:META) advertising revenue climbed nearly 19%, totaling $39.9 billion. The company has projected its fourth-quarter revenue between $45 billion and $48 billion. Additionally, a notable rise in capital expenditures is expected in 2025, as CEO Mark Zuckerberg emphasized the importance of investing in artificial intelligence and infrastructure for future growth.
Management mentioned that AI plays a crucial role in boosting user engagement and time spent on its platforms, while also providing tools for advertisers to improve the effectiveness of their campaigns and boost conversion rates. The company highlighted advancements in its Llama large language model, which has seen significant growth in tokens, aiding in AI computations. Training for Llama 4 is currently underway, utilizing a cluster that is bigger than 100,000 H100 graphic processing units.
Number of Hedge Fund Holders: 279
Talking about Microsoft Corporation’s (NASDAQ:MSFT) solid quarter during last Wednesday’s episode, Cramer highlighted the company surpassing the estimates and advised to focus on the forward guidance.
“Microsoft traded up initially on the strength of the results for the reporting quarter, including a top and bottom line beat, plus, much better than expected growth for its Azure cloud computing business. It grew 33%, Wall Street’s looking for 29 and 12 points of that growth came from the company’s AI offerings. That said, anyone trading Microsoft now’s being reckless. As I told you, many times, many times the success of each Microsoft quarter is usually determined by the company’s forward guidance, which they don’t give us until… the conference call that’s going on right now.”
Microsoft (NASDAQ:MSFT) is a leading technology company that develops and supports a wide range of software, services, devices, and solutions. Its portfolio includes productivity applications, business solutions, cloud services, operating systems, hardware, and gaming products.
According to IBISWorld, the company has a noteworthy market share in around 18 industries. It holds the largest market share in the Database, Storage, and Backup Software Publishing industry, representing approximately 56.0% of the total revenue in this sector.
For fiscal Q2 2025, the company’s management expects growth for its Azure cloud services to range between 31% and 32%, marking a deceleration from the previous quarter’s 34% growth rate. Overall, revenue for the Intelligent Cloud segment is projected to increase by 18% to 20% year over year.
Microsoft (NASDAQ:MSFT) management projected that sales from AI-related products are expected to remain consistent with last quarter’s performance. The company is optimistic about Azure’s potential to accelerate in the latter half of the fiscal year, driven by new investments in data center capacity that are set to come online.
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
