This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

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) now tops this list. And any housing company -- Lennar (LEN - Get Report), Toll (TOL), Centex (CTX), Horton (DHI), Pulte (PHM). 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) 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 - Get Report) now the best. Colgate(CL), after the quarter. I like Clorox(CLX). Kimberly-Clark's(KMB) 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 - Get Report) right again. Foster Wheeler(FWLT) on a pullback, KBR(KBR) on a pullback, McDermott(MDR) after the quarter, Fluor(FLR), CB&I(CBI), Jacobs(JEC), Manitowoc(MTW), Terex(TEX).
  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) on a pullback, Halliburton(HAL) on a pullback, Schlumberger(SLB) on a pullback, Conoco(COP) and Chevron(CVX) now. XTO(XTO) for those willing to wait, as this one is the best wildcatters in the world. Apache's(APA) good too.
  4. Tech that's international that does well as part of the back-to-school and holiday buildup. Dell(DELL), Hewlett-Packard(HPQ - Get Report), Texas Instruments(TXN), Adobe(ADBE) all good.
  5. Drugs that do lots of business overseas. Merck(MRK), Schering(SGP) and Lilly(LLY) all good.
  6. Health care cost containment. Think Medco(MHS) and CVS(CVS).
  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) is the best there, now that we have seen Lockheed Martin(LMT). I would still buy Lockheed and L-3(LLL) and Raytheon(RTN). Boeing(BA) works. So does Riverbed(RVBD).
  8. The Web. Google's(GOOG) been punished long enough. Growth is too great. Omniture(OMTR) and Level 3(LVLT) are the preferred specs.
  9. Ag. Be careful about a robust corn crop, but this works into the election. Deere(DE), Bunge(BG), Monsanto(MON - Get Report).
  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), Ciena(CIEN), Juniper(JNPR) and even Sycamore(SCMR) (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.
At the time of publication, Cramer was long Clorox, Caterpillar, Transocean, XTO Energy and Hewlett-Packard.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS . Watch Cramer on "Mad Money" weeknights on CNBC. Click here to order Cramer's latest book, "Mad Money: Watch TV, Get Rich," click here to order his book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here .

TheStreet.com has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from TheStreet.com.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CAT $77.75 0.54%
HPQ $30.30 0.00%
LEN $51.47 -0.27%
MON $102.87 0.85%
PEP $96.62 0.09%

Markets

Chart of I:DJI
DOW 17,679.77 -71.62 -0.40%
S&P 500 2,101.92 -6.65 -0.32%
NASDAQ 5,095.4190 -16.3140 -0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs