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RealMoney Radio: Home Cyclical

TheStreet.com Staff

The sellers in the homebuilding industry have been "desperate" to sell their houses and are thus cutting their prices, Jim Cramer said on his "RealMoney" radio show Thursday.

Buyers who have been waiting for these price cuts should now be ready to buy, he added.

Homebuilders cannot finance their inventories so they continue to cut prices until they find buyers, which is what is happening now, Cramer said.

After all, the housing business is not an industry that can be kept on the books because houses are really expensive.

In fact, "there is not an industry in the world that can finance nonproducing inventory except oil, which is why I like that business so much," Cramer said. "Its inventory goes up in price as it sits because of a developing multiyear storage."

He believes that the analysts got "lulled" into thinking that homebuilding was a secular grower, and then they discovered it was cyclical, Cramer went on to say. "They downgraded the cyclicals at the bottom of the cycle because the price-to-earnings ratios soared."

Analysts love to wonder out loud where the economy may be going, Cramer said. But if market players open their eyes, he believes they will be able to see for themselves where it is headed.

The pullback of the auto and homebuilding sectors -- "two very important industries that matter to the economy" -- augurs a "big decline" in the economy, Cramer said.

General Motors (GM Quote) and Ford (F Quote) are trying their best to lay off people, and the large homebuilders keep saying they are done with building any more homes, he said.

In fact, the only place Cramer sees money being spent is in the energy industry. Everyone is focused on its rally as mutual funds spill money into oil stocks, he said, adding that the Exxon Mobil (XOM Quote) has become the "anointed" stock in this sector.

However, the more "intriguing" rally is in health care and drug stocks, Cramer continued. The bottom has been put into these stocks postelection, and now they are screaming, "Buy, buy, buy!"

He considers WellPoint (WLP Quote) best of breed and also likes MedcoHealth (MHS Quote).

For his charitable trust, Action Alerts PLUS, Cramer said he has been buying Quest Diagnostics (DGX Quote).

He also believes that Schering-Plough (SGP Quote) and Johnson & Johnson (JNJ Quote), both of which he also owns for his trust, are "too cheap," as is Amgen (AMGN Quote).

However, Pfizer (PFE Quote) is "too expensive," Cramer said.

To see the most recent edition of The RealMoney Radio Recap in its entirety, please click here. This recap is published every day around 3 p.m. ET.