We recently compiled a list of the Jim Cramer's Game Plan: 23 Stocks to Watch.In this article, we are going to take a look at where GE Aerospace (NYSE:GE) stands against the other stocks to watch according to Jim Cramer.
As Wall Street dives into the heart of earnings season, Jim Cramer has provided insights into market trends and earnings reports to watch in the upcoming week. Cramer remarked,
“It’s hard to believe, but this market’s now been up for six straight weeks. That’s right, despite interest rates running higher since mid-September, despite being on the verge of an election where both candidates want to pile on trillions of dollars of debt to an already unfathomable amount of borrowing, this market seems like it can’t help itself from going higher.”
Cramer highlighted the influence of the Federal Reserve, noting that ever since the rate cut on September 18, the market has largely trended upward. He emphasized that it is not solely the Fed driving this bullish sentiment, the earnings season has brought some remarkable quarterly results. With strong performance from banks kicking off the earnings cycle, Cramer posed the question of whether the rally could extend into a seventh consecutive week, suggesting following his game plan to assess this possibility.
On a separate note, addressing economic indicators, Cramer warned that if the economy continues to produce solid numbers, the likelihood of substantial rate cuts will diminish. While he believes that rates will eventually decline, he cautioned those shorting Treasurys, suggesting that they may be making a mistake.
Cramer noted a significant caveat, which is the upcoming election, and pointed out that both candidates are advocating potentially inflationary policies.
“Both candidates have pushed potentially inflationary policies. As I said at the top, if Trump can win enough of a majority to pass his huge tariffs, or Harris expands housing tax credits and de facto subsidy, they could push home prices higher. Then inflation might stage a comeback. But I'm not betting on that. I think both parties are terrified of being blamed for inflation, which almost single-handedly sunk Joe Biden's presidency. No matter what the candidates campaign on, I don't see their allies in Congress taking any chances with inflation beyond the usual unwillingness to balance the budget.”
He concluded that those betting against Treasurys have overreached, suggesting that their efforts to counter the Fed's policies are unlikely to end well. Cramer observed that when a large number of investors align on one side of a trade, as seen currently, that group often ends up being incorrect.
Our Methodology
For this article, we compiled a list of 23 stocks that were discussed by Jim Cramer during his episode of Mad Money on October 18. 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).
A technician in a power station monitoring the flow of energy generated by a gas turbine.
Cramer previously talked about GE Aerospace (NYSE:GE) and commented that due to significant production challenges faced by Boeing and Airbus, there is a growing need for airplanes to have a longer lifespan. He added that consequently, the company’s engine service division is “on fire”.
“Tuesday's also a real big aerospace morning with numbers from RTX and GE Aerospace. Now, both stocks have been flying high. I bet that continues after the report, and most likely, they will raise estimates. These are two fantastic, well-run companies.”
GE Aerospace (NYSE:GE) is involved in designing and manufacturing engines for both commercial and military aircraft, as well as providing integrated engine components, electric power systems, and mechanical aircraft systems. According to management, as the year progressed, the company showed significant financial growth, with earnings and free cash flow both increasing by over 50%. The company achieved a remarkable free cash flow conversion rate of nearly 120%, highlighting its operational efficiency.
Building on these strong results and positive momentum, the company raised its profit and cash flow guidance. Revenue growth is now expected to rise in the high-single digits because of a decrease in equipment revenue within the Commercial Engines & Services (CES) segment. The revised expectations show that CES equipment revenue will increase in the high single to low double digits, a shift from previous forecasts of high-teens growth.
In terms of services, CES is forecasted to see growth in the mid-teens, leading to overall CES growth projected at low-double digits to mid-teens. Regarding operating profit, GE Aerospace (NYSE:GE) now expects a range between $6.5 billion and $6.8 billion, marking an increase of $250 million at the midpoint from earlier forecasts, accompanied by margin expansion.
The improvement is primarily driven by CES, with its operating profit now expected to fall between $6.3 billion and $6.5 billion, up from the previous estimate of $6.1 billion to $6.4 billion. Additionally, the company has raised its free cash flow guidance to a range of $5.3 billion to $5.6 billion.
Overall GE ranks 2nd on Jim Cramer's list of stocks to watch. While we acknowledge the potential of GE 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 GE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
