CNBC personality Jim Cramer is one of the most-watched stock gurus on TV. He hosts the network’s “Mad Money” and “Squawk on the Street” shows. He also was a co-founder of TheStreet.com.
That platform makes him a lightning rod for critiques about his stock picks. An exchange traded fund (ETF) that tracked his stock picks closed down just 5 months after it launched. It couldn’t attract enough capital. But one that does the exact opposite of what Cramer picks still thrives. The Inverse Cramer Tracker ETF (NYSE:SJIM) is down slightly at a -2.8% return since its inception.
There’s no doubt Cramer is smart. He worked for Goldman Sachs (NYSE:GS) and founded his own hedge fund before breaking into TV. But investors should never blindly follow his advice, or the advice of any other stock guru. Not even Warren Buffett. Their stock picks are simply a good launch pad for further due diligence on your part.
The “Mad Money” host recently expressed his love for the following three companies. Here’s why these are Jim Cramer stocks to sell if you own them.
On Holdings (ONON)
Footwear and apparel specialist On Holdings (NYSE:ONON) is not only a Cramer favorite, but quickly became a market darling as well. Shares of the Swiss maker of trendy shoes with celebrity endorsers are up 41% in 2023. They had been much higher as the stock is down 35% from its recent highs.
Cramer told “Squawk on the Street” viewers in August the footwear stock was growing faster than Nike (NYSE:NKE). He dismissed concerns over currency exchange rates On Holdings faces. “If you look through the Swiss franc, you realize they’re just smoking hot,” he said. Shares have fallen over 12% since. Cramer did partially walk back his enthusiastic embrace a week later, saying the stock is not as good as he previously thought.
On Holdings just released a three-year outlook update. It intends to double its sales by 2026 to $3.87 billion and do so at adjusted EBITDA margins of 18%. Gross margins will be north of 60%. With sales up 44% over the first two quarters of 2023 and an adjusted EBITDA margin of 14.1%, up from 10.8% a year ago, it appears doable. Yet the targets seem overly aggressive. And despite the stock pullback, it is still expensive.
SoFi Technologies (SOFI)
Much of SoFi’s business is built around refinancing student loans. That gives it a big boost now that borrowers must start repaying those loans. The problem is soaring interest rates since the repayment moratorium went into effect will undermine demand for refinancing. Alternatively, it will cause SoFi to take a hit to margins if it tries to offer competitive rates.
Longer term, college enrollment is in freefall, tumbling 8% between 2019 and 2022. That’s even accounting for a return to in-persons classes following the pandemic. SoFi’s student loan originations were down 1% in the second quarter.
Home loan origination volume also fell, plummeting 27% for the period. This is while personal loans soared 51%. It would suggest the consumer is becoming more hard pressed and in need of money. And with personal loans being uncollateralized, unlike home and auto loans, the risk of default is greater. SoFi’s provision for credit losses were soaring during the quarter, up 22% year over year.
SoFi stock is 41% higher year to date, but it’s also richly valued. There may be some tailwinds that could see the stock bounce, but the risk is growing and selling now protects your downside.
Topgolf Callaway Brands (MODG)
The summer doldrums hit golfing outfit Topgolf Callaway Brands (NASDAQ:MODG) following Cramer’s endorsement in July. The stock tumbled 30% afterwards, though it had been falling prior to his recommendation.
During the “Lightning Round” of “Mad Money,” Cramer expressed surprise at Topgolf’s weakness. “Stock’s been disappointing,” he told viewers, “and I think it’s rather strange because the business itself is very good. I think you should buy the stock.”
Golf is always a popular form of entertainment, and Callaway’s merger with Topgolf in 2021 sought to capitalize on that when the market was weakest due to the pandemic. Yet it also caused Callaway’s debt to explode from $443 million before the Covid-19 outbreak and where it stands today at over $1.5 billion. It also has obligations for operating leases totaling $1.4 billion, but only has $192 million in cash.
While Topgolf Calloway’s valuation looks reasonable at 16 times earnings estimates and a fraction of its sales and book value, there are no catalysts for growth. It may be some time before this golf stock lands on the green again.
On the date of publication, Rich Duprey did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.