Cramer: What's Working Now, and What Isn't

This column was originally published on RealMoney on July 25 at 10:52 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

The formula is simple. It's like a checklist for what you can and can't own in a slowing U.S. economy with credit woes throughout the system brought on by what always brings it on: declining underwriting standards.

So first, here's the checklist of what must be avoided:

1. Does it need lower rates from the Fed to go up? Countrywide(CFC Quote - Cramer on CFC - Stock Picks) now tops this list. And any housing company -- Lennar(LEN Quote - Cramer on LEN - Stock Picks), Toll(TOL Quote - Cramer on TOL - Stock Picks), Centex(CTX Quote - Cramer on CTX - Stock Picks), Horton(DHI Quote - Cramer on DHI - Stock Picks), Pulte(PHM Quote - Cramer on PHM - Stock Picks). I am really worried about these. Also, all banks, all brokers.

2. Does the consumer need to borrow in order to finance the purchase? That's almost every retailer. Circuit City(CC Quote - Cramer on CC - Stock Picks) comes most immediately to mind.

3. Does the corporation or the private banker need to borrow in order to make an acquisition (as opposed to using stock or cash on hand)? That takes out all private equity.

4. Does it have mostly domestic business? Does that business get hurt on a further decline in housing or GDP? Can it be offset by international demand? There are tons of companies that fall into this category.

It's a four-point program!

Now, what can be bought?

1. Soft goods with good growth overseas. Pepsi's(PEP Quote - Cramer on PEP - Stock Picks) now the best. Colgate(CL Quote - Cramer on CL - Stock Picks), after the quarter. I like Clorox(CLX Quote - Cramer on CLX - Stock Picks). Kimberly-Clark's(KMB Quote - Cramer on KMB - Stock Picks) now good.
2. Machinery, metal and mining stocks, the infrastructure you need to take advantage of them -- and what transports them to overseas. I don't include coal because the green movement has stopped it for now and the government has given up supporting coal -- at least, until it realizes it has no choice. Caterpillar's(CAT Quote - Cramer on CAT - Stock Picks) right again. Foster Wheeler(FWLT Quote - Cramer on FWLT - Stock Picks) on a pullback, KBR(KBR Quote - Cramer on KBR - Stock Picks) on a pullback, McDermott(MDR Quote - Cramer on MDR - Stock Picks) after the quarter, Fluor(FLR Quote - Cramer on FLR - Stock Picks), CB&I(CBI Quote - Cramer on CBI - Stock Picks), Jacobs(JEC Quote - Cramer on JEC - Stock Picks), Manitowoc(MTW Quote - Cramer on MTW - Stock Picks), Terex(TEX Quote - Cramer on TEX - Stock Picks).
3. Oil -- but not gas, unless we get some sort of disruption of supply for the latter. Extracting oil anywhere but North America is the strongest area, followed by the integrated oils. Will natural gas come back? Everything will come back, but this is a checklist of what can be bought now. Transocean(RIG Quote - Cramer on RIG - Stock Picks) on a pullback, Halliburton(HAL Quote - Cramer on HAL - Stock Picks) on a pullback, Schlumberger(SLB Quote - Cramer on SLB - Stock Picks) on a pullback, Conoco(COP Quote - Cramer on COP - Stock Picks) and Chevron(CVX Quote - Cramer on CVX - Stock Picks) now. XTO(XTO Quote - Cramer on XTO - Stock Picks) for those willing to wait, as this one is the best wildcatters in the world. Apache's(APA Quote - Cramer on APA - Stock Picks) good too.
4. Tech that's international that does well as part of the back-to-school and holiday buildup. Dell(DELL Quote - Cramer on DELL - Stock Picks), Hewlett-Packard(HPQ Quote - Cramer on HPQ - Stock Picks), Texas Instruments(TXN Quote - Cramer on TXN - Stock Picks), Adobe(ADBE Quote - Cramer on ADBE - Stock Picks) all good.
5. Drugs that do lots of business overseas. Merck(MRK Quote - Cramer on MRK - Stock Picks), Schering(SGP Quote - Cramer on SGP - Stock Picks) and Lilly(LLY Quote - Cramer on LLY - Stock Picks) all good.
6. Health care cost containment. Think Medco(MHS Quote - Cramer on MHS - Stock Picks) and CVS(CVS Quote - Cramer on CVS - Stock Picks).
7. Aerospace and defense. Aerospace because demand is international with a new product cycle, and defense because we now know the war drags on, no matter what. Alliant Tech(ATK Quote - Cramer on ATK - Stock Picks) is the best there, now that we have seen Lockheed Martin(LMT Quote - Cramer on LMT - Stock Picks). I would still buy Lockheed and L-3(LLL Quote - Cramer on LLL - Stock Picks) and Raytheon(RTN Quote - Cramer on RTN - Stock Picks). Boeing(BA Quote - Cramer on BA - Stock Picks) works. So does Riverbed(RVBD Quote - Cramer on RVBD - Stock Picks).
8. The Web. Google's(GOOG Quote - Cramer on GOOG - Stock Picks) been punished long enough. Growth is too great. Omniture(OMTR Quote - Cramer on OMTR - Stock Picks) and Level 3(LVLT Quote - Cramer on LVLT - Stock Picks) are the preferred specs.
9. Ag. Be careful about a robust corn crop, but this works into the election. Deere(DE Quote - Cramer on DE - Stock Picks), Bunge(BG Quote - Cramer on BG - Stock Picks), Monsanto(MON Quote - Cramer on MON - Stock Picks).
10. Telco infrastructure. They need to build. They can't help it. They have starved their infrastructure -- check Noah Blackstein's excellent piece from Tuesday. Cisco(CSCO Quote - Cramer on CSCO - Stock Picks), Ciena(CIEN Quote - Cramer on CIEN - Stock Picks), Juniper(JNPR Quote - Cramer on JNPR - Stock Picks) and even Sycamore(SCMR Quote - Cramer on SCMR - Stock Picks) (that's how strong this is now).

What happens if you own one of the stocks that is on the bad checklist?

Sell if you can't take pain.

I can't be more honest than that. I am used to taking pain. Most people aren't. Sell. And be aware, if I own one of the "sell" stocks for my Action Alerts PLUS, it's not contradictory -- I'm running a long-term, balanced portfolio that can't ignore 50% of the S&P 500, which is pretty much what I am ruling out here.

If the average audience of Stockpickr can be the judge, everything I do is contrary and inconsistent, but that's because I am writing about both my time frame, which allows some of the bad, and the current time frame, which doesn't. I find that lack of discernment ridiculous; most of the people who read me act like hedge fund managers and only care about tomorrow or today. That's silly, but it's the audience so I play to it.