On the Level: Tricky Times in Tech Land

Are you confused about what in the heck is going on in the stock market?

Welcome to the club.

A year ago, the extremes in the market were easier to see. Tech stocks were a mania. All other sectors were unfairly ignored. It turned out that in 2000, all you had to do to have a good year was avoid tech and embrace nontech -- sell priceline.com(PCLN Quote - Cramer on PCLN - Stock Picks) and buy Merck(MRK Quote - Cramer on MRK - Stock Picks), say.

Things are trickier now. The extremes have modulated. Tech has gone down a ton. Merck and other so-called defensive stocks have rallied nicely. Add to the equation the slowing of the economy, and you have a puzzle with many pieces.

So, what are some reasonable approaches for investors facing this kind of economic uncertainty? Here are two common sense ideas you might want to keep in mind.

First, don't obsess over tech. Don't overweight tech. You do not have to own Cisco Systems(CSCO Quote - Cramer on CSCO - Stock Picks). You do not have to own Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks). You do not have to own JDS Uniphase(JDSU Quote - Cramer on JDSU - Stock Picks). You can simply ignore Amazon.com(AMZN Quote - Cramer on AMZN - Stock Picks). These are mainly great companies, but that does not mean they are necessarily great stocks right now.

Why not? Well, they aren't working, and they haven't worked for quite some time. Nor are their valuations all that low. And history shows that very good companies can see their stocks peak and not see those peaks again for years.

Take Dell Computer(DELL Quote - Cramer on DELL - Stock Picks), for instance. The stock did pretty much nothing from February 1999 through March 2000, and that was the peak of the tech bubble. And since March of last year, the stock has declined from a peak of nearly $58 a share to the current $25-to-$26 range. Yet, Dell is, by all accounts, still a fine company. It just isn't the growth company it used to be. Sure, you can own it here. Michael Dell has been buying stock of late.. It's already had a bit of a bounce this year. But does that mean you have to load up on Dell in hopes that it makes new highs soon?

Nope.

Good Entry Point?

Tech stocks may not go down all that much, but neither are they obviously about to take off again next month. Telecom-equipment companies and telecom-service companies still face a market with too much capacity, cutthroat pricing and all the consequent unprofitability that comes with that territory. PC and software sales are not about to surge. The high-tech engine is cooling. Accept it and move on.

The second thing to keep in mind is that stocks sporting high dividends offer you more upside potential than pricier equities with a no-dividend policy. You can believe whichever of the economic forecasters you want, but chances are they will be wrong. (How many economists on Wall Street called the current slowdown? Not many. So forget about them.)

Focus on what you know. Interest rates are coming down, and the economy is not about to pick up speed anytime soon. In that environment, stocks with above-average dividends and steady growth like Philip Morris(MO Quote - Cramer on MO - Stock Picks) make sense, or if you want to take a bit more macroeconomic risk you could try a cyclical stock like railroad company CSX(CSX Quote - Cramer on CSX - Stock Picks), which carries a 3.9% dividend. In a declining interest-rate environment, such payouts become more valuable. And in the event of a serious recession, they provide a bit of protection should the entire market pancake.

In the past three to four weeks of Fed easings, investor expectations have improved radically. Perhaps it means that the recession fears of last year were way overblown?

But in the next three to four months, we are highly likely to get more, scary economic news calling into question the assumed power of monetary and fiscal policy to reverse the slowdown quickly. Investors may once again wonder whether the business cycle has yet bottomed. They may call into question the 1991 thesis so eloquently argued by Jim Cramer. We may get consumer confidence numbers that make Wednesday's report seem benign. We may not yet have gotten bad news comparable to what we got in 1991, when we had a real estate crash, a banking system in danger and inflation on the rise.

Perhaps, the economy will soon right itself. Let's hope so. But in any event, just keep these two things in mind: There is no law saying you must own tech. And dividends matter.