In this article, we will be taking a look at 10 stocks Cramer thinks can weather a debt default. To explore similar stocks, you can go see 5 Stocks Cramer Thinks Can Weather a Debt Default.
"When The Market Throws a Sale, I Tell You To Do Some Buying"
On May 12, Jim Cramer noted the bleak market conditions, with major indices such as the Dow and the S&P 500 being down by 222 points and 0.17%, respectively. However, instead of throwing caution to the winds, the Mad Money host decided it was time to dive into a financial history lesson to show just where to put your money to turn a profit at a time when spending even a penny may hurt.
Based on "the economic data" Cramer has analyzed, he found it safe to say that "the Federal Reserve may finally be out of the picture." He expressed that the situation may have even "cooled enough" for the Fed to "not need to hit us with any more rate hikes any time soon." News like this can only be a cause for celebration for any investor, but as Cramer shows in his episode, it does not mean it's time to forget about contingency planning for your stock portfolios. The economic crisis that the US is going through is very much real and very much present. Cramer noted that "based on the last debt ceiling crisis, this market could have a lot more downside" before the US government gets a deal if they get one at all. Here are some comments from Cramer on potential developments:
“Maybe the government ends up defaulting on its obligations. That's very much on the table, despite protestations from both sides of the aisle that it will never happen. Right now with the economy slowing and tax receipts coming up short, we might bump up toward the limit by the end of the month.”
It's not just the US that has been suffering from debt. As we mentioned in one of our previous articles, global debt, in general, is surging. In 2020 alone, global debt rose by 30% to 263% of gross domestic product. However, the US at present seems to be at a stalemate regarding the debt ceiling deadline. Cramer noted that:
“On the one side, you have President Biden, who's been unwilling to negotiate in any substantive form. On the other side, you have Speaker McCarthy who's giving the appearance of being willing to negotiate, but his suggestions have very little chance of leading to any meaningful compromise.”
"The White House Will Have To Blink"
Despite the situation recounted above, Cramer is confident that the White House will have to bow, seeing as "President Biden is running for re-election next year." Because of his future plans, Biden cannot "afford to let a default happen, or even a recession sparked by fears of default." Regardless of how the situation plays out in the coming months, Cramer is more interested in recommending the best stocks to tide investors by in this time of uncertainty. So he uses the example of the 2011 debt ceiling crisis to learn from and navigate the current crisis.
By considering this past economic crisis, Cramer takes his audience through the many stocks and sectors that managed to weather the storm back in 2011. They included a range of companies from pharmaceutical corporations and fast food providers to major tech names like Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and NVIDIA Corporation (NASDAQ:NVDA), which have remained popular for decades. According to Cramer, "What worked back then can perhaps work now."
To pick our stocks, we first watched Jim Cramer's episode on Mad Money from May 12. Cramer talks about a number of stocks and sectors that initially dropped during the 2011 economic decline but managed to climb back up better than all other stocks on the market. From these stocks, we selected the top 10 by using Insider Monkey's hedge fund data for the first quarter. The stocks are ranked based on the number of hedge funds holding stakes in them, from the lowest number to the highest.
The companies Cramer covers in his episode were among the first to be impacted by the 2011 debt ceiling crisis. However, as Cramer shows, they were also among the best performers at that time and managed to claw their way back up on the charts as much as they could. Several factors, such as consumer reliance on the products and services offered by these companies or their immense potential to grow in light of technological advancements today, can make the same thing happen for these companies during the present crisis. The tech names we've mentioned above are part of this cohort of stocks, and they have immense potential to remain resilient and profitable for investors today because of their deep involvement in artificial intelligence, according to Cramer.
10 Stocks Cramer Thinks Can Weather a Debt Default
10. Mondelez International, Inc. (NASDAQ:MDLZ)
Number of Hedge Fund Holders: 51
Cramer feels that those who are looking for a food stock should consider Mondelez International, Inc. (NASDAQ:MDLZ), a stock that is "crushing it with cookies." He believes that apart from "consistent demand" for its products, the company is also benefitting from a "decline in cost resulting from the end of supply-chain problems from COVID, and lower commodity prices," alongside "cheaper transport."
GLG Partners was the largest shareholder in Mondelez International, Inc. (NASDAQ:MDLZ) at the end of the first quarter, holding 2.9 million shares.
On May 1, analysts at Mizuho raised the price target on Mondelez International, Inc. (NASDAQ:MDLZ) shares from $78 to $86. The firm also held its Buy rating on the stock.
There were 51 hedge funds long the stock in the first quarter, with a total stake value of $1.2 billion.
9. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 55
Deutsche Bank holds a Buy rating on Colgate-Palmolive Company (NYSE:CL) as of May 1. The firm also raised its price target on the stock from $80 to $88.
Cramer referred to Colgate-Palmolive Company (NYSE:CL) as a "sleeping giant" that has awoken, one that "seems poised for a nice run"
As of the end of the first quarter of 2023, 55 hedge funds held stakes in Colgate-Palmolive Company (NYSE:CL). Their total stake value in the company was $3.2 billion.
Just like Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and NVIDIA Corporation (NASDAQ:NVDA), Colgate-Palmolive Company (NYSE:CL) is another stock that Cramer thinks can do well in the event of a debt default, in light of its past performance.
8. McDonald's Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 64
Of the 64 hedge funds long McDonald's Corporation (NYSE:MCD) in the first quarter, Marshall Wace LLP was the most prominent stakeholder in the company, holding 1.6 million shares. The total stake value in the company was $4.04 billion.
Alton Stump, an analyst at Loop Capital, holds a Buy rating and a $346 price target on McDonald's Corporation (NYSE:MCD) shares as of May 12.
In the fiscal first quarter of 2023, McDonald's Corporation (NYSE:MCD) generated revenues of $5.9 billion, up by 4.1% year-over-year.
Cramer thinks fast food stocks like McDonald's Corporation (NYSE:MCD) are definitely "worth considering" in times of economic crisis.
7. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 70
On April 27, Barclays analysts raised the price target on PepsiCo, Inc. (NASDAQ:PEP) from $201 to $206. The firm also reiterated an Overweight rating on the stock.
Cramer believes that while The Coca-Cola Company (NYSE:KO) has long been a stellar performer, PepsiCo, Inc. (NASDAQ:PEP) is "the star of the show" this time around. This development came in light of the company's monopoly on snack products, considering the fact that "snacking has become far more ingrained in our lifestyle than it was in 2011."
PepsiCo, Inc. (NASDAQ:PEP) was noted among the portfolios of 70 hedge funds in the first quarter, with a total stake value of $4 billion.
PepsiCo, Inc. (NASDAQ:PEP), like Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and NVIDIA Corporation (NASDAQ:NVDA), has proven to be a resilient stock in times of economic crisis.
6. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 72
Cramer believes that Eli Lilly and Company (NYSE:LLY) is "on the cusp of the largest drug launch in ages." The company's Mounjaro product, a "revolutionary diabetes drug that doubles as a weight-loss treatment," may take its sales "off the charts" considering the obesity problem in the US.
On May 26, Wells Fargo not only reiterated an Overweight rating on Eli Lilly and Company (NYSE:LLY) shares but also raised its price target on the stock from $440 to $500.
Our hedge fund data shows 72 funds long Eli Lilly and Company (NYSE:LLY) in the first quarter, with a total stake value of $3.7 billion.
GQG Partners held the most shares in Eli Lilly and Company (NYSE:LLY) at the end of the first quarter, coming in at 2.9 million shares.
“Eli Lilly and Company (NYSE:LLY) is a global pharmaceutical company with core franchises in diabetes, obesity, neurology, and oncology. The company offered exposure to therapeutics in obesity and diabetes via the launch of Mounjaro, as well as in Alzheimer’s via Donanemab which was filed in November 2022 for accelerated Phase 3 approval in mid-2023. While the company reported decent fiscal fourth quarter results, shares detracted from performance after a modest miss in their obesity and diabetes drug. Mounjaro. Moreover, investors became skeptical of potential regulatory scrutiny around Donanemab and its efficacy relative to Biogen’s competing offering.”
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Disclosure: None. 10 Stocks Cramer Thinks Can Weather a Debt Default is originally published on Insider Monkey.