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The Seattle Beasts; Perspective on China: Jim Cramer's Best Blogs

Day two is when you figure out what shouldn't have been taken down with the futures, what isn't really affected but has gotten hammered as surely as if its chief earnings stream came directly from Beijing. I spend an immense amount of time in Get Rich Carefully addressing just this kind of broad-futures-led panic and how to handle it, so I feel that the perspective I have can really help here, as so many people presume it is "game over" exactly when it might be "game on."

My suggestion for today is that unless you have a specific company that just reported an amazing quarter, just sit on your hands and do some work on the stocks that are being brought low by the futures, particularly the drugs, the foods, the domestic banks and other healthcare names.

Ideas? How about Unilever (UL), which just reported a terrific quarter earlier in the week? How about Mondelez International (MDLZ), where activist Nelson Peltz just joined the board? How about a troika of companies that never seems to come down: McKesson (MCK), AmerisourceBergen (ABC) and Cardinal Health (CAH)? Or consider some of the charmed big pharmas here, such as Merck (MRK) or Bristol-Myers Squibb (BMY).

I would normally say domestic retailers, but the Achilles heel here is that there are earnings difficulties that can't yet be said to be discounted enough by this market. Same with restaurants, although the staying power of McDonald's (MCD) after still one more disappointing quarter is pretty amazing. Wendy's (WEN) did deliver better numbers, and it has no exposure to China. I would be more aggressive, but we need to see what Starbucks (SBUX - Get Report), which has China exposure, has to say tonight. Notice, however, that Brinker International (EAT) is up nicely, owing to its excellent report.

You can also pick at your favorite bond-market-equivalent stocks -- the always out-of-favor by the analysts but in-favor by the regular guy stocks, such as Clorox (CLX) and Kimberly-Clark (KMB), come to mind. But so do the real estate investment trusts and master limited partnerships that are not connected to retail, such as Ventas (VTR), the nursing home company, or Linn Energy (LINE).

Some real gunslingers might be tempted to buy Netflix (NFLX) even up here, or Tesla Motors (TSLA) or (AMZN - Get Report), the cult stocks that spring back first, although I still think they are better day-three material. And of course, the natural gas stocks should spring back quickly, too, owing to the cold weather.  

I would normally recommend that you revert to some of the themes I trace out in Get Rich Carefully for tomorrow's purchasing, namely the holy trinity of tech, social mobile and the cloud, and the biotechs and health and wellness stocks. Unfortunately, they were all on a roll coming into this crisis, so they might be more of a day-three or day-four consideration.

But the biotech stocks, namely Gilead (GILD), Regeneron (REGN), Biogen Idec (BIIB) and Celgene (CELG) have been too hot, and holy trinity names like (CRM) or Facebook (FB) or Twitter (TWTR) have also been too steaming to pick up today.

Day three will be the day to pick up the unaffected banks, the regionals, which have been terrific to date and which have nothing to do with China but have been brought down by the ETFs that handle the financials. I also like many of the special-situation plays, Dow Chemical (DOW) and perhaps eBay (EBAY), which are under activist pressure.

Only on day four will it be safe to buy industrials, because they are all guilty until proven innocent, and the terrifically performing techs, notably the telecom-equipment stocks. You could normally be more aggressive and shift those to day three, except that there's so much direct and indirect exposure. Not coincidentally, the day-four stocks are still going to be regarded as sales today and the beginning of tomorrow as longs and shorts anticipate further declines.

You might ask, why do anything? Why not let everything come down? Here's the issue: You are being given some entry points that would be wiped out if the Chinese suddenly ease to take care of the situation. Do you want to avoid picking at Alcoa (AA) if it comes down to $10 after this selloff? Don't you want to buy an already-vetted United Technologies (UTX) or a Union Pacific (UNP)? I know I do.

Again, no need to rush into anything. Today is the first day most have heard of the China Credit Trust or the Credit Equals Gold No. 1 Collective Trust, and obviously, it won't be the last. China is the second-largest economy in the world. It never pays to be too sanguine in the face of any crisis. I also want to keep one eye on the debt-ceiling negotiations that seem to be kicking off now. The pundits are reassuring us not to worry. That's precisely why you do need to be worried.

Just remember that things are better here than they have been in ages and that China has a habit of surprising us to the upside when you think that you are about to cliff-jump without a net.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long LINE.



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