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 SAP SE (NYSE:SAP) 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 data centre room with cloud technology, illustrating the enterprise application software services.
During the episode of Mad Money, Cramer started his game plan for the week with SAP SE (NYSE:SAP). He said:
“... This is the German software giant… SAP has been delivering stellar results as it advises companies on tech strategies, including cloud enterprise resource planning and adopting artificial intelligence. They're very good. They have a lot of ideas for you. A lot of companies love to sign up with them.”
SAP SE (NYSE:SAP) is a provider of a wide range of applications, technology, and services that support various business functions, including finance, human resources, and supply chain management.
SAP SE (NYSE:SAP) reported its third-quarter earnings result on October 21. In the quarter, it demonstrated strong business momentum, with the current cloud backlog increasing by 25% to €15.38 billion, and showing a 29% rise when adjusted for constant currencies. The acquisition of WalkMe contributed about 1% to this growth. Cloud revenue reached €4.35 billion, marking a 25% increase. The growth was largely driven by the Cloud ERP Suite, which saw revenue grow by 34% to €3.64 billion.
However, software license revenue experienced a decline, decreasing by 15% to €0.28 billion. In contrast, cloud and software revenue combined increased by 11% to €7.43 billion. Overall, total revenue rose by 9% to €8.47 billion. Free cash flow showed significant improvement in the third quarter, rising by 44% to €1.25 billion.
Although around €0.3 billion was allocated for restructuring efforts, the positive development primarily stemmed from increased profitability and reduced tax payments. Over the first nine months, free cash flow increased by 47%, reaching a total of €5.03 billion.
Overall SAP ranks 22nd on Jim Cramer's list of stocks to watch. While we acknowledge the potential of SAP 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 SAP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
