We recently published Jim Cramer’s Exclusive List: 10 Stocks to Monitor Closely. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other stocks Jim Cramer recommends to monitor closely.
On a recent episode of Mad Money, Jim Cramer emphasized the risks of straying too far from technology stocks, particularly the dominant tech companies, in today’s market. He pointed out how JP Morgan, despite being one of the best-performing banks, caused a stir by cutting its forecast, warning that estimates might be overly optimistic. This news hurt the broader market, dropping it by 93 points, although the S&P 500 saw a slight rise of 0.54%, and the tech-driven NASDAQ gained 0.84%.
“In this market, every time you stray too far from technology, especially the tech titans, you ultimately get slapped in the face by reality. That’s what happened today when the largest, and arguably best-performing, bank in the world, laid a huge egg with its forecast. They told us the estimates are too high, maybe way too high. That spoiled a big chunk of the market, ultimately dipping 93 points. The S&P inched up 0.54%, but the tech-heavy NASDAQ still gained 0.84%.”
Cramer explained that since the Federal Reserve gave positive signals, investors had shifted away from tech into other areas of the market. This shift was part of the “broadening out” that many investors had been waiting for, as it was believed to signal a healthier market. Financial stocks, which make up around 13.3% of the S&P 500, had been a source of excitement for those tired of relying on the leading tech stocks.
“For the past couple of months, ever since the Fed gave us the all-clear signal, we’ve seen money flow out of tech into long-neglected regions of the stock market. This is the fabled “broadening out” that people spent all year clamoring for. When we bring in more groups of winners, we’re supposed to have a much healthier market, at least that’s what they say. There are tons of financials in the S&P 500, about 13.3% of the index and the strength in those stocks was a source of much joy for everyone who had gotten sick of The Magnificent Seven.”
However, as Cramer noted, economic uncertainty and disappointing forecasts from bank companies disrupted this broader market strength. Daniel Pinto, the bank company’s COO, dashed hopes by signaling that the outlook for the bank wasn’t as strong as expected. The key issue was that net interest income, a critical measure for banks, was projected to miss expectations due to reduced capital market activity. For Cramer, this underperformance highlighted the danger of moving away from tech stocks too soon.
“But a funny thing happened on the way to that broadened-out market: we got economic choppiness. Or to use a more accurate phrase, we got guide-downs that were intolerable to any of the leaders, and the kiss of death to the stock of the bank. You can’t be a leader when you’re slashing your forecast for H2. That’s when the shareholders kick you to the curb and find someone new to follow.
But today, Daniel Pinto, the bank’s President and Chief Operating Officer, lowered the boom on the optimists who desperately wanted to buy something other than tech. The big bank told us that things are less bullish than we thought. There isn’t as much capital markets activity as we’d hoped this quarter, and most importantly, the estimates for next year are too high because of a likely miss on net interest income.”
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A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Jim Cramer believes that Wall Street is underestimating the significance of the Apple Inc. (NASDAQ:AAPL) iPhone 16 launch. He points out that previous iPhone models have also faced initial criticism, but have ultimately proven successful. Cramer emphasizes that the incremental improvements in the iPhone 16 contribute to increased usage of Apple Inc. (NASDAQ:AAPL)’s services, a growing revenue stream that will eventually surpass the iPhone. While customer reaction to the new phone is uncertain, Cramer believes that the improvements will be highly valued by millions of users, making Apple Inc. (NASDAQ:AAPL) a strong long-term investment.
“Wall Street doesn’t seem too excited about the launch of the Apple Inc. iPhone 16 yesterday, but let me tell you something about this product. Every iPhone has been criticized as a disappointment at launch, except for the first couple of models. Every iPhone supposedly offers only incremental improvements. Don’t bother reading the reviews. That’s what they’ll tell you every single time…
As an Apple aficionado, I want to point out that all of these improvements mean a step up in how many people use Apple’s Services. This is the important revenue stream because one day it will surpass the iPhone as the dominant earnings driver. The service revenue stream is often overlooked, even though it’s becoming a larger and larger part of the puzzle…
We don’t really know how customers will react to the new phone. It’s always been guesswork. But what isn’t guesswork is that these incremental improvements are astonishing features to tens or even hundreds of millions of people. That’s what keeps you owning and not trading the stock of Apple Inc., one of the greatest wealth creators of all time.”
The positive outlook for Apple Inc. (NASDAQ:AAPL) is based on its strong growth potential, despite some short-term challenges. Although iPhone 15 sales in China have been weak, analysts expect a significant upgrade cycle, with anticipation for over 270 million units, especially as the iPhone 16 nears its 2025 release. Apple Inc. (NASDAQ:AAPL)’s services segment, including the App Store, is thriving, with Q1 2024 revenue reaching a record $23.1 billion and showing strong double-digit growth.
Apple Inc. (NASDAQ:AAPL) is also advancing in artificial intelligence, integrating AI into products like the iPhone 16 and the Vision Pro headset, which positions Apple as a leader in AI innovation. Despite some difficulties in hardware sales, Apple Inc. (NASDAQ:AAPL)’s resilient gross margins and strong profitability from its services support its financial stability.
Baron Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago…” (Click here to read more)
Overall AAPL ranks 1st on our list of exclusive stocks Jim Cramer recommends to monitor closely. While we acknowledge the potential of AAPL as an investment, our conviction lies in the belief that under the radar 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 AAPL 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.
