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"The higher prices we had this morning were a gift so we wouldn't get beat up," Jim Cramer said on his "Mad Money" TV show Tuesday.
"I hope people sold the sectors that are totally untouchable -- the banks, homebuilders and most definitely the brokers."
The worst-case scenario keeps playing out, so sell what's not working, he said. This is a tough market, and what's making it tougher is the financials. The whole market is not in bull mode, but individual sectors are.
Therefore, once market players sell the bad, they should slowly redeploy their capital into the bull markets that are still working, such as aerospace, machinery, agriculture, minerals, infrastructure and oil and oil services, Cramer said.
In addition, Cramer said he has a brand new bull market people can get into as they sell the stocks that are not working. "After this quarter, defense has become the seventh bull market," Cramer said.
Defense stories have dominated the front pages of the newspapers as the American defense industry supplies the increasing demand in the Middle East market for arms, he said, citing a recent article in
The New York Times
And it doesn't stop with arms sales. The army, Cramer said, is saying that the U.S. is going to be spending a long time in Iraq.
"The future looks pretty bright for the defense industry," he said. "Our military spending is seven times that of China. We are a war machine, and while I don't want that, we should try to profit off of it."
"It is what it is," Cramer continued. "Defense is in, and financials are out."
Defense stocks are "cheap" and should be bought here, Cramer told viewers. The defense spending cycle is continuing, and because the Democrats are afraid of looking weak on security, they should continue to spend on defense if they take over, as well, he said.
When seeking out a defense play, people should look for three things. First, they should look for valuation, Cramer said. "Cheaper is better."
The second thing people should want from their stock, as odd as it sounds, is that it is levered mostly to defense. A lot of these defense contractors are not strictly defense, he pointed out. For example,
is the second-largest defense contractor in the country, but it is mostly involved in commercial aircraft.
Finally, people should look out for U.S. contractors, because they are the ones profiting from the military arms deals from the Middle East.
Keeping these three qualities in mind, Cramer named
as his second-favorite defense play. This company, he said, makes bullets, and 87% of its sales come from defense. Plus, it trades at 1.3 times its growth rate and is therefore cheap, he said.
As the military industry continues to spend, Alliant's numbers should come up, Cramer said. The company has an "amazing" buyback, so much so that "some would say it's taking itself private."
In fact, the decrease in Alliant's share count leads Cramer to believe there is an upside surprise coming soon.
However, if people are going to buy Alliant, they should be careful, Cramer warned. The company reports earnings Thursday. He said he would put half his position on before the quarter in case it runs after it reports.
President and CEO David Wenner joined Cramer on his show and discussed his company's plans.
B&G tends to buy smaller brands that have been neglected but have great brand equity and margin structures, Wenner said. "We focus on them and are typically successful in turning them around."
When Cramer asked whether B&G is able to pass on the food inflation, Wenner said the company has done so this year and that it's a trend that's improving.
For those investors who are worried about being in a world where mortgages are causing pain, Cramer suggested taking a look at BGS.
During the "Sudden Death" round, Cramer was bullish on
and bearish on
Cramer was bullish on
FactSet Research Systems
Cramer was bearish on
Buffalo Wild Wings
For more of Cramer's insights during the Lightning Round, click here
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At the time of publication, Cramer was long EMC.
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