SWK - Inverse Jim Cramer Strategy - Q2 2023 Update

2023-07-06 16:41:25 ET

Summary

• Today, we provide an update on our Inverse Jim Cramer strategy by taking a look at the results of his top stock picks for the quarter ending in June.
• We analyzed close to 600 new stock calls made in the quarter which we have added to our final tally, proving both his long and short calls underperforming the market.
• Despite the impressive market recovery, Cramer is becoming increasingly cautious about the future, advocating for taking something off the table after this big run.
• The strategy reached its all-time high during the quarter, ultimately generating a 6.59% market-beating year-to-date return and a one-year return of 20.86%.
• Jim Cramer's most discussed stocks for the quarter include Luminar Technologies, Caterpillar, Enphase Energy, Meta Platforms, and Advanced Micro Devices.

Inverse Cramer Q2 '23 Update

The end of the month of June brings you the second-quarter update on our most-popular investing strategy analyzing the latest moves of the world-famous finance TV host. We track Jim's commentaries and most frequent stock picks made on his appearances on CNBC shows including Mad Money, Halftime Report, Fast Money, and others. Our thoughts on the matter are summarized in the original thesis and can be accessed through this link , while the last quarter's update can be read here .

In a little more than a year and a half, a theoretical $100 million principal pitched against Cramer's stock-picking abilities would have compounded to $181.62 million, marking another all-time high for this specific strategy. Following the strategy and betting against Jim Cramer would have yielded a year-to-date return of 15.10%, just barely beating the market by a half-percentage. As far as the one-year return is concerned, it currently stands at 22%, with the Inverse Jim Cramer strategy now yielding a 27% historical CAGR. This strategy works by shorting Jim's 10 most-discussed stocks over the previous 30 days and hedging them with a long position in the market index. The method implements an equal-weighted portfolio, as well as a weekly rebalancing system in order to achieve the highest possible results.

At this moment, the top position within the Inverse Cramer strategy is the C3.ai, Inc. ( AI ) short. The Palantir ( PLTR ) position is a close second, while Enphase Energy ( ENPH ) remains the third largest holding. The list also includes the previously discussed Advanced Micro Devices ( AMD ), Ford Motor Company ( F ), Oracle ( ORCL ), PayPal Holdings ( PYPL ).

Jim's Second-Quarter Picks

Concluding with the end of June, Jim Cramer added close to 600 new stock in the second quarter, pushing the famous TV host count to 4975 at the end of this quarter. Cramer expressed a positive outlook on 322 different occasions while expressing his negative sentiment on stocks 192 times. Compared to the last quarter, Jim was slightly less bullish in the second quarter, with only a 1.67x positive Cramer ratio. The data shows us that Jim's calls underperformed the S&P 500 ( SPY ) both on the positive calls, which returned a median return of -3.52%, and on the negative calls, which achieved a median return of -6.21%. For the same period, the market returned a steady 6.50%.

Besides the top firms in the middle of our discussion today, Jim was particularly bullish on the prospects of American Express ( AXP ), Humana ( HUM ), Stanley Black & Decker ( SWK ), CVS Health ( CVS ), Wynn Resorts ( WYNN ), Energy Transfer ( ET ), Microsoft ( MSFT ), and Pioneer Natural Resources ( PXD ), among others.

On the other end of the spectrum, it was Ely Lilly and Company ( LLY ), Qualcomm ( QCOM ), Lucid Group ( LCID ), Devon Energy ( DVN ), Bank of America ( BAC ), Rivian Automotive ( RIVN ), C3.ai ( AI ), Ally Financial ( ALLY ), and Newell Brands ( NWL ) that received the other end of the stick.

Luminar Technologies, Inc. ( LAZR )

LAZR is a Florida-based company that specializes in developing LIDAR technologies with the aim of supporting autonomous vehicles and advanced driver assistance systems. Their technology they claim to be built in-house from ground up since the company was formed in 2012. Luminar Technologies went public in 2020 through a SPAC merger, allowing investors the opportunity to explore much of the previously untapped lidar space and building much hype along the way. The period since has been rather difficult for LAZR, with its share price being pressured back into the SPAC range. LAZR has joined the ranks as one of the best-performing stocks in 2023, managing to gain 33% year-to-date, outpacing the S&P500 ( SPY ) by a wide margin. This is still a far fall from the SPAC price and the following hype that saw the company trade around the $34.00 range for a period of time. However, with a current market capitalization of $2.55 billion, the firm is still burning through mountains of cash every quarter. Bulls would point to a new lineup of orders capable of doubling the firm's top line; however, the reality of things is that LAZR is selling at a negative EV/EBITDA of 12.38x and a negative P/FCF of 11.60x. Luminar burns through $262 million in cash and loses $587 million on an annualized basis, taking the first-quarter losses into consideration. Seeking Alpha Analysts remain undecided on the prospects of LAZR, assigning it a "Hold" rating on average. Street Analysts on the other end are somewhat bullish, rating the firm as a "Buy" with an average score of 4.16/5.00, respectively. A LAZR short was opened on June 23rd, and its shares are currently selling for $6.50, about a 10% increase since the short was added to the portfolio.

Caterpillar Inc. ( CAT )

Caterpillar is a company returning to our list from previous quarterly updates, with Jim holding it in immensely high regard and discussing it on a dozen or so different occasions, most recently at the beginning of this month. CAT is likely the best-known construction brand, whose century-long stranglehold over building equipment and machinery makes it difficult to find a construction site in the world without the famous logo. Despite its powerful position in the industrial sector, the market did not always assign it a premium, as even today CAT trades at an EV/EBITDA of 11.50x, a P/E of 13.75x, and a P/FCF of 11.28x. This valuation also includes a dividend yield of 1.24%. CAT currently lags behind the market, gaining practically nothing year-to-date. Street Analysts show little appreciation for Caterpillar, only assigning it a "Hold" rating with an average score of 3.48/5.00, while SA Analysts on the other end rate the firm as a "Buy" with an average score of 3.93/5.00. The company is currently trading for $240 per share.

Enphase Energy, Inc. ( ENPH )

Enphase Energy is a California-based technology and energy management innovation company that is in the business of developing and manufacturing battery energy storage, EV charging stations, and solar micro-inverters. ENPH primarily targets residential clients and homeowners but also sells its solutions to solar distributors, large installers, original equipment manufacturers, and other strategic partners. It touts itself as taking a modern and revolutionary approach to helping people generate, store, and sell their own power. The company has been going through a difficult couple of years in the markets, having lost nearly 40% year-to-date and having its valuation reset to pre 2020 run-up. Its compressed price opened the road to a much more sensible but still steep valuation, as ENPH now trades at an EV/EBITDA of 20.50x, a P/E of 27.57x, and a P/FCF of 26.92x. Both groups of analysts hold the company to high standards and have a high opinion of the stock. Seeking Alpha Analysts rate it as a "Buy", granting it an average score of 3.50/5.00, while Street Analysts rate it as a "Buy" with an average score of 4.17/5.00. The short position was added to the inverse portfolio in the last week of June but was fully covered just a week later. Jim Cramer discussed the firm a half dozen times during the quarter, most recently on the 31st of May. Shares of Enphase can be bought for $161.

Advanced Micro Devices ( AMD )

Under the vigorous leadership of Lisa Su, AMD managed to pull off one of the most impressive turnaround stories in modern day business. The visionary CEO has taken the company through a rough patch, taking over when AMD was bleeding money, losing market share, piling up debt, and staring down the throat of a potential bankruptcy. Dr. Su's now almost decade-long tenure as CEO of the company saw AMD become one of the hottest stocks of the past bull market, selling for more than $150 per share at one point in 2021. The firm joined a long list of major bleeders last year whose stock prices suffered greatly under the pressure of the declining macroeconomic environment, with AMD losing more than half of its market capitalization. However, fortunes have turned again as the company finds itself back on track, gaining 72% year-to-date and slowly creeping up to all-time highs. The recent price movement impacted the valuations, as the firm now trades at an EV/EBITDA of 24.89x, a P/E of 34.87x, and a P/FCF of 54.95x. Despite the runup, SA Authors hold the company in medium regard, granting it a "Buy" rating with an average score of 3.61/5.00. Street Analysts are slightly more bullish, willing to assign it a "Buy" rating and an average score of 4.18/5.00. An AMD short joined the Inverse Cramer portfolio in early June. Today, shares of Advanced Micro Devices can be purchased for around $112

Meta Platforms ( META )

With Mark Zuckerberg at the helm, the most prominent social media company is coming off perhaps its most impressive turnaround among large caps this year in the markets, managing to gain a 144% year-to-date return. This comes after a tremendously difficult year for the social media giant. Largely based on fears of over spending oversight on Zuckerberg's Metaverse project, as well as growing fears of a meltdown in the advertising market and a degrading macro situation, the company lost more than two-thirds of its market capitalization last year. However, strong operating results over the past couple of quarters as well as some calming messaging coming down from the top of the company served to put an end to the bleeding. After having its valuation reset almost to five-year lows, things have turned around quite nicely for META. After the latest runup, its shares are back trading again at slightly elevated valuations for roughly NTM EV/EBITDA of 10.88x, an NTM P/E of 22.41x, and an NTM P/FCF of 28.55x. Even at these prices, both Seeking Alpha and Wall Street analysts remain highly positive on Meta's trajectory, assigning the company a "Buy" rating with an average score of 3.82/5.00 and 4.15/5.00, respectively. Recent developments and the change of heart among investors led Cramer to become increasingly bullish on its prospects, most recently discussing it on the 21st of June, and a short against it made its way into the portfolio on the 26th of March. It currently trades at around $293 per share.

Closing thoughts

As the market seemingly finds a way to digest the stew of negativity surrounding the macro-economic environment, Jim Cramer is turning increasingly negative on what the future might bring with each of his on-air appearances. While nothing compared to his negative appearances from the back end of last year, there is a noticeable swing in sentiment both on screen and corroborated by the decreasing ratio in his bullish to bearish calls. The market is now getting close to erasing all last year's losses; the S&P gaining around 15% year-to-date, with many of the issues leading to those losses not yet fully resolved. The underlying trend of his most discussed stocks trailing the S&P500 index still remains strong to the point where inverting them would lead to market-generating alpha and overall positive returns.

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