Editor's Note: This article was originally published on Real Money on April 26. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.
NEW YORK ( Real Money) -- It's all on the banks and the homebuilders. Both groups are on the cusp of what looks like some serious breakouts, and the bulls need them both to get over these humps if we're to see the broader market punch through to the highs.
The leadership is challenged right now, because it is no longer a united front. All the foods and beverages and drugs had gone higher since the year began -- but now, when we see the quarters, we don't like the coloration of many of them. We have decided, for example, not that the environment is hard, but that it's harder for Procter & Gamble (PG) than it is for Colgate (CL). We like Bristol-Myers (BMY) and Pfizer (PFE), but they are not immune to valuation or drug denials, especially after they have outrun their yield protection.
Do you really want to pay $50 and change for General Mills (GIS)? Wouldn't you rather the company first put on another good quarter?But the banks? We look back and we think, "How bad were they?" We begin to wonder: Have they gotten too cheap, given how strong housing is? The housing shortage is becoming so palpable that people are beginning to say, "Wait a second -- this group keeps putting up the numbers. Maybe the valuations aren't so wacky." I know the charts look fantastic for the banks, and I am drawn to PNC (PNC), which has put in a terrific quarter, as well as JPMorgan Chase (JPM), which we are buying for the Action Alerts PLUS trust, and KeyCorp (KEY), which looks like it is going to go about $10. I think Wells Fargo (WFC) is resting for its next move, and Lennar (LEN) and Toll Brothers (TOL) are way too cheap. Pulte (PHM) may be the best in show, and the stock has rested from its mighty move last year. These are the stocks to watch going into the end of April. New leadership should emerge now, or the market will not punch through those highs anytime soon. Here's one other to watch (heads up to bearish Doug Kass!) -- Berkshire Hathaway (BRK.B), both a financial and a homebuilder, looks ripe to go higher. It's a nice hybrid that will have to be repulsed at the gates if the bears are to have any luck rolling back this move. Random musings: Many thanks to regular contributor Matt Horween for suggesting these charts to me. Matt recently did a terrific piece for us that you might have missed. Action Alerts PLUS, which Cramer co-manages as a charitable trust, has positions in JPM and KEY.