Jim Cramer sees Ford and Costco nearing buy levels. Here's the story behind each

Published Wed, Apr 3 20244:20 PM EDT

Ford and Costco are approaching good levels to pick up additional shares, according to Jim Cramer. Both companies depend on how Americans are feeling about the economy, which reached its highest reading since July 2021, according to the University of Michigan consumer sentiment survey for March. "Costco shares have given back some recent gains but business is strong," said Jeff Marks, the Club's director of portfolio analysis. "Ford's stock has been slowly moving up on improving business fundamentals." Ford fundamentals Shares of Club name Ford rose 2.8% to $13.65 each Wednesday after vehicle sales in the first quarter grew 6.8%. The automaker's pivot to high-margin hybrid vehicles continued to pay off. Hybrid sales were up 42% in Q1, which was the best figure in more than two decades. Electric vehicle sales were up 86% despite some industry signs of dampening EV demand. "These numbers do not show the profitability of Ford," Jim said Wednesday, suggesting investors should value the company at higher levels. Ford shares need to catch up to crosstown rival General Motors , he argued. Shares of GM were up 25.8% year to date, compared with Ford's 11.98% gain. "I want to run with it," he added on Ford stock. F 1Y mountain F stock's 1-year performance. Usually, we think of buying stocks when they are going down. But in the case of an embattled stock like Ford, it's sometimes better to see whether a nascent recovery like Ford shares have enjoyed this year will take hold against business improvements. Our Club price target on Ford is $15 per share. In the meantime, we're holding Ford because it's making some of the most in-demand hybrids. Ford's hybrids, which include a sought-after F-150 pickup version, carry higher margins that have been helping offset losses in the company's Model e business, which houses its fleet of electric vehicles. Another incentive to own the stock has been its annual dividend yield — currently around 4.4%. Costco opportunity Club holding Costco caught some heat Wednesday, falling 0.8% in the session, after it was downgraded by Gordon Haskett along with three other retailers: Five Below , Dollar Tree and Lowe's . The analysts cut their Costco rating to accumulate from buy but held their price target at $775 per share. Gordon Haskett was "waving a yellow flag" after Costco's more-than-40% rally over the past 12 months. While still optimistic about 2024 given the positive macro backdrop of low unemployment, real wage growth, and moderating inflation, the analysts cite a "notable wall-of-worry" on recent gas price increases, election risk, and fewer shopping holidays. That call didn't change our bullish long-term view on Costco. "I'm not going to back away. Costco is really great," Jim said, while suggesting that pullbacks present a buying opportunity. "Costco's chart is really bad and yet as I said [Tuesday] if this thing goes under $700, I want people to start accumulating it." Costco shares are up nearly 7% year to date. The stock has pulled back about 10% after closing at an all-time high of $785.59 on March 7. The reason: second quarter results for fiscal 2024 that didn't clear the very high bar set by Wall Street. As we said at the time, a slight miss on sales and margins was not a thesis-changing event. In fact, we raised our price target to the current $800 per share from $770 after the report. COST 1Y mountain COST stock's 1-year performance. The fact the membership-only retailer has a new CEO and CFO after veteran executives Craig Jelinek and Rich Galanti retired is certainly a wrinkle to the Costco story. But given our view that Costco has a strong company culture and the new CEO, Ron Vachris, was promoted from within, we don't see the departures impacting operations or execution. Kroger's former finance chief, Gary Millerchip, took over the same job at Costco in mid-March. Costco has drifted lower in recent weeks even with a key catalyst on the horizon. An earlier catalyst that we'd been waiting to see, a special cash dividend, was finally declared in December and totaled $15 a share. The looming spark for the stock is a membership fee increase, which typically occurs every five years or so. It's a matter of "when, not if" management will decide to raise fees. When this happens, some of that additional fee income could flow directly to profits. But a majority of the extra cash would likely be reinvested back into the business to keep product prices down, which drives store traffic and market share. (Jim Cramer's Charitable Trust is long F, COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The logo of car manufacturer Ford is pictured in Inwood, New York, on February 5, 2024.

Charly Triballeau | AFP | Getty Images