We recently published a list of Jim Cramer’s Must-Watch List: 10 Stocks to Look After. In this article, we are going to take a look at where Schlumberger Limited (NYSE:SLB) stands against other Jim Cramer’s must-watch stocks.
In a recent episode of Mad Money, Jim Cramer explained that with the economy slowing down, the Federal Reserve is poised to ease its policies. He anticipates that the Fed will decide to cut rates, but the exact size of the cut, whether 25 or 50 basis points, remains uncertain. This upcoming decision is particularly important because it could significantly impact the market.
“At last, the economy has slowed enough that the Fed can take its foot off the brakes and step on the gas. That’s why we’re starting our game plan in the middle of next week when the Federal Reserve renders its verdict: 25 or 50 basis points. We don’t typically have a lot of drama in this business, but this one counts as a nail-biter because we really don’t know how big the rate cut will be. We just know they’re going to cut.”
Cramer highlighted Friday’s market performance, where the Dow gained 297 points, the S&P rose by 0.54%, and the Nasdaq increased by 0.65%. This strong performance marked the best two weeks of the year for the S&P and the Nasdaq. The rise in these indices suggests that the market might be expecting a substantial rate cut, potentially 50 basis points. Cramer noted that stocks sensitive to interest rates, especially those related to housing, surged in anticipation of this.
“Today’s rally saw the Dow gaining 297 points, the S&P advancing 0.54%, and the Nasdaq climbing 0.65%, capping off the best two weeks of the year for both the latter two indices. The S&P and the Nasdaq suggest the Fed might actually go for 50. That’s a double rate cut. I know this because the stocks most sensitive to interest rates, particularly housing and housing-related names, soared today.”
Using an analogy from NFL fantasy football, Cramer compared the market’s optimism to waiting for a major play from the Fed. Despite this, he personally bets on a 25 basis point cut rather than 50. He argues that while a larger cut could help the slowing economy, particularly affecting lower-income groups, it also risks reigniting inflation and causing panic. A 50 basis point cut might signal severe economic problems, which could lead to unnecessary anxiety.
“To use a little NFL fantasy football lingo, they soared presumably in anticipation of something huge from Jay Powell and company. All aboard! I still find myself betting on a quarter-point cut, though. It’s not that we don’t need a half-point cut, as the economy is slowing pretty quickly, especially for the lower-income cohort. However, I’ve always believed that the Fed should be measured when it cuts rates at this stage of the business cycle.
The biggest risk is that inflation might flare up again if you cut too much, and a 50 basis point cut all at once makes that a lot more likely. Plus, a double rate cut signals that something may be very wrong with the economy—something we don’t know about, something lurking. So going for 50 could inspire panic, and there’s simply no reason for the Fed to take that chance when it can simply hit us with a series of thoughtful 25 basis point cuts that neither reignite inflation nor cause panic.”
Cramer also cautioned that if the housing market rally continues, it could lead to a sell-off if only a 25 basis point cut is announced. He pointed out that traders are currently pricing in a higher chance of a 50 basis point cut, according to the CME Group’s FedWatch tool. If the Fed opts for a smaller cut, traders who bought in anticipation of a larger reduction might sell off their stocks, potentially causing market volatility.
“Now, if the housing rally continues at this pace, these stocks run the risk of being too hot to handle for a mere 25 basis point cut, and we’ll get a sell-off in response. Keep in mind how the CME Group’s FedWatch tool, which tracks interest rate expectations based on the Fed Funds Futures Market, indicates that traders are now pricing in a much higher probability of a double rate cut, currently at 45%. That’s much higher than it was a week ago. These traders could indeed be disappointed if the Fed decides to be more measured. They could be your enemy come Wednesday at 2 p.m. as they dump what they bought incorrectly, and that is what happens. That’s what traders do, they let the stocks go.”
Finally, Jim Cramer believes that this coming week marks a significant moment for the market. He advises that if the market declines following a 25 basis point rate cut, investors should keep in mind the strong performance of this week. He suggests that this week’s gains are a sign of more positive developments to come as the Federal Reserve continues to ease monetary policy.
“When I look at next week, I can only conclude that we’re finally at the moment we’ve all been waiting for. So let me give you the bottom line: if we sell off on a 25 basis point rate cut, remember this phenomenal week, because there will be plenty more like it as the easing process continues and progresses.”
At Insider Monkey we are obsessed with 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).
An aerial view of a well site, depicting the scale of oil and gas operations.
Number of Hedge Fund Investors: 67
Jim Cramer praised Schlumberger Limited (NYSE:SLB), describing it as an “amazing company.” He recalled his own experience from 1983 when he interviewed for a job at Schlumberger Limited (NYSE:SLB) and was told he lacked the necessary knowledge. Cramer took that feedback seriously but now views Schlumberger Limited (NYSE:SLB) as a highly undervalued stock. He believes that, despite his past experience, Schlumberger Limited (NYSE:SLB) is a great investment opportunity and advised against selling the stock at its current level.
“Schlumberger is an amazing company. I actually interviewed with SLB in 1983 for a job, and they told me to get the hell out because I didn’t know anything. I took that as gospel. I do think that Schlumberger is a very inexpensive stock, and I would not sell it down here.”
Schlumberger Limited (NYSE:SLB) is a strong investment opportunity due to its solid financial performance, growing international presence, and strategic focus on digital and energy transition projects. In Q2 2024, Schlumberger Limited (NYSE:SLB) saw a 5% increase in revenue, reaching $9.1 billion, thanks to a 6% rise in international revenue, especially in the Middle East and Asia.
Schlumberger Limited (NYSE:SLB) also reported an 11% increase in adjusted EBITDA and earnings per share (EPS) of $0.85, showing growth both from the previous quarter and year-over-year. Operating margins improved by 135 basis points to 20.3%, and its digital and integration divisions achieved 31% margins. Schlumberger Limited (NYSE:SLB)’s emphasis on deepwater offshore projects and energy transition technologies, along with a 10% increase in digital revenue, highlights its strong position for future growth. With strong financials, expanding margins, and a forward-looking strategy, Schlumberger Limited (NYSE:SLB) is well-positioned for continued success.
Overall, SLB ranks 1st on our list of Jim Cramer’s must-watch stocks. While we acknowledge the potential of SLB, 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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
