It's been a while since the markets have seen a sizable selloff, and few investors seem ready for it, Jim Cramer told his Mad Money viewers Monday. Cramer said he wished he could be more hopeful, but he's not encouraged by what he's seeing.
On Wall Street, stocks finished sharply lower Monday as investors weighed both the human and economic costs of the accelerating spread of the coronavirus out of Wuhan, China, which has killed a reported 82 people and expanded to at least 10 different countries. The Centers for Disease Control said Monday that there are at least five confirmed cases of the Wuhan coronavirus in the U.S.
To put things into perspective, the CDC estimates 35 million people in the U.S. got the flu during the 2018-19 season. More than 400,000 were hospitalized, and more than 34,000 are estimated to have died of the flu and flu-related illnesses.
Those numbers are far worse than what we've seen with this coronavirus so far, Cramer said. But he added that risk to corporate profits is still serious.
So while Cramer said the coronavirus doesn't pose any systemic risk to our financial system nor does it have the ability to topple our economy, there are some stocks that should be avoided.
He said all Chinese stocks are at risk, are those that depend on China for growth, including Starbucks (SBUX) - Get Report and Yum China (YUMC) - Get Report. Investors must also avoid the travel stocks, the casino stocks and manufacturing that is levered to China, like Caterpillar (CAT) - Get Report and 3M (MMM) - Get Report.
If the epidemic causes people to buy bonds, or results in lower interest rates, that would be bad news for the banks as well, he said.
But, Cramer said, that doesn't mean there aren't stocks worth buying, including the so-called stay-at-home stocks like Amazon (AMZN) - Get Report, Comcast (CMCSA) - Get Report, Walt Disney (DIS) - Get Report and Netflix (NFLX) - Get Report.
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Buying Into Weakness
As the market sells off, investors should be looking for great companies to buy into weakness. When it comes to the cloud software giants, Cramer said investors can't go wrong with both Adobe Systems (ADBE) - Get Report and Salesforce.com (CRM) - Get Report.
Both Adobe and Salesforce helped pioneer the software-as-a-service category and both continue to reinvent themselves and be leaders in the category.
Adobe is forecasting 18% growth and trades for 30 times earnings with strong gross margins and a $128 billion total addressable market.
Salesforce boasts a slightly higher growth rate at 23% but the stock trades for a lofty 46 times earnings. The total addressable market for Salesforce is higher than Adobe at $168 billion, but the company has smaller gross margins.
Cramer said while both stocks have lots of room to grow, he struggled to declare a winner. He said either can be bought into any coronavirus market weakness.
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Panic should never be part of an investing strategy, Cramer reminded viewers. It never makes sense to sell everything, he said, which is why the smart money is looking for great stocks that aren't affected by the coronavirus, or those that might even profit from it.
Drugmaker AbbVie (ABBV) - Get Report has two drugs that are being used to treat this latest coronavirus outbreak. While it's unknown how effective the drug might be, Cramer said there's lots to like about the stock of AbbVie, including its dividend. Clorox (CLX) - Get Report could be another winner in this situation, as bleach is highly regarded for its disinfecting qualities.
When viruses are running rampant, people stay home and cook, Cramer said. That bodes well for spicemaker McCormick (MKC) - Get Report. Cramer also gave the nod to Moderna (MRNA) - Get Report and Thermo Fisher Scientific (TMO) - Get Report, both of which are aiding in the fight to find a treatment for this coronavirus.
Finally, Cramer said, speculative investors can consider Owens & Minor (OMI) - Get Report, maker of hospital gowns and masks. This is a wild trader, he cautioned, as shares are off 81% over the past five years. However, even with that dismal performance, Owens & Minor typically does well during health epidemics.
But Don't Be a Hero
In his "No-Huddle Offense" segment, Cramer said don't try to be a hero. It's simply not worth the risk. Too many investors were buying into Monday's market weakness without considering that this coronavirus still isn't contained and without asking, "What if things get worse?"
What happens if cases begin to spread here in the U.S.? There are still too many variables that could send the market into a tailspin, Cramer said, and that's why investors must use restraint. You can pick at some of the this weakness, he said, but the worst of the selloff is likely still yet to come.
Off the Charts: Oil and Gas
In his "Off The Charts" segment, Cramer checked in with colleague Carley Garner to see whether it's finally time for oil and gas to see a relief rally.
Garner first looked at the seasonal patterns of West Texas Intermediate crude and noted that late January always marks the bottom for oil prices. Turning to a weekly chart, Garner noted that oil has a floor of support at $52 a barrel and if that bottom holds, a rally could take crude back to highs near $90 a barrel if currencies cooperate. If the floor doesn't hold, it's possible to see $40 a barrel.
Looking at natural gas, Garner felt that producers will soon start curbing supply, allowing gas prices to rebound. She noted the Commitment of Traders (COT) report, shows large speculators with historic short positions on natural gas, leaving lots of upside potential.
Here's what Jim Cramer had to say about some of the stocks that callers offered up during the Mad Money Lightning Round Monday evening:
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At the time of publication, Cramer's Action Alerts PLUS had a position SBUX, AMZN, DIS, ABBV.