'RealMoney' Radio Recap: Follow the Leader

"The market's got a bad case of 'LGQ,'" or Last Good Quarter, said Jim Cramer on his "RealMoney" radio show Thursday. This happens every time at the end of a cyclical expansion when the economy starts running out of gas, he said.

Companies like Phelps Dodge (PD Quote), Caterpillar (CAT Quote) and Black & Decker (BDK Quote) have reported good quarters, but investors don't believe the good times will last, he said. "LGQ" also has been affecting natural gas stocks, oil stocks, mineral stocks and fertilizer stocks, said Cramer. Or, for example, take the homebuilders. "Is there anything they can possibly say" that would stop those stocks from going down? asked Cramer.

A leadership change is occurring, he said. Stocks of companies that are resistant to an economic downturn will do well in this stage of the cycle, he said. That means you need to look at stocks like Colgate (CL Quote), Unilever (UN Quote), Procter & Gamble (PG Quote), Kimberly-Clark (KMB Quote), Schering-Plough (SGP Quote), Wyeth (WYE Quote), GlaxoSmithKline (GSK Quote), Genzyme (GENZ Quote), Gilead Sciences (GILD Quote), Amgen (AMGN Quote), Genentech (DNA Quote), Coca-Cola (KO Quote), PepsiCo (PEP Quote), General Mills (GIS Quote) and Kellogg (K Quote).

The one exception to Cramer's rule that defensive stocks work here is high-growth tech, he said. Big-screen TVs are doing OK, and that means Corning (GLW Quote) and Best Buy (BBY Quote) are OK. Cell phones are strong, he said, which means Motorola (MOT Quote) should do well despite the economic downturn. Cramer expects video games to remain strong, which means Electronic Arts (ERTS Quote) and GameStop (GME Quote) are buys. Finally, anything that makes good use of fast Internet should be OK too, he said.

Economic downturns usually last a few months, said Cramer, and the first stocks that work coming out of a downturn are the financials, he said. Indeed, bank stocks are bottoming now, he said. Cramer will look to position himself overweight the financials in the next few weeks, he said.