"Buy weakness. Sell strength," Jim Cramer told his
"RealMoney" radio show listeners Tuesday.
It's a mantra he repeats often, and he said it again because many people who bought stocks when prices were going up got crushed in the latest market selloff.
Commodities and their related stocks were up a tremendous amount since the beginning of the year, he said. These commodities include zinc, steel, copper, gold, silver and aluminum, along with industries like mining and companies that make earth-moving and safety products.
He said that this is all part of the commodities complex and that the complex has been soaring because developing nations of the world need these building blocks to develop their infrastructures.
Investors who bought this complex low and started scaling out last week did not get crushed by this selloff, he said. They sold into strength. "Scaling out" means selling out of a position in pieces.
But a lot of people bought into the commodities complex after it had already moved considerably higher, hoping that it would just continue to climb.
So, when these stocks took a swan dive, traders who bought them up had no choice but to panic, he said. For example, if an investor paid $102 for
( PD) five days ago and then watched it go to $87 just a few days later, of course, panic set in.
Cramer said that the trick is not only to scale out of stocks as they grow very strong, but to also pick up stocks when people are panicking and taking the prices down.
Soon, we'll be able to start buying these stocks again in steps, he said, adding that investors who sold some of these stocks in a panic can start picking them up again now that the price is lower.
However, he warned that stocks need to be bought in increments, just as they should be sold in increments. This is because one can never be sure that a stock has bottomed, and buying in increments gives investors an opportunity to buy a little more at a lower price.
Cramer said that mid-cap tech stocks look like they may have reached a bottom, including
Financials may soon stop falling because the
may stop raising rates now that commodities prices have collapsed, he said. In this space, he likes
( CFC), which Cramer owns for his
Action Alerts PLUS portfolio.
He believes that the retailer
is a best-of-breed company that is just marking time, and that now is the time to buy
( WFMI). The company reported a great quarter, but the stock has fallen.
Moreover, he said that
is a buy. It also reported an unbelievable quarter, but the stock pulled back 10% overnight.
In the commodities complex, he reminded listeners that "oil has its own pulse," and that he would not be afraid to start buying some here. Specifically, he said to look at
. Not only is Warren Buffett buying the stock, it's really cheap now.
Cramer also said he would look at
Running Hot and Cold
There are things you need to know to spot when a company will turn from hot to cold, when its stocks will go from great to bad, said Cramer.
One thing to look at is inventories, said Cramer, adding that prices come down whenever there is a growing stockpile of a given product. The exception here is oil, he said.
Countries around the world are stockpiling crude because its supply is threatened by global instability and terrorism.
Otherwise, inventory is a good clue as to whether a stock will turn lower; and Cramer pointed out some big inventory gluts in the economy, including housing, natural gas and semiconductors.
Because of these gluts, Cramer said he would not get into these sectors. There is also a glut of stocks on the market, with 10 companies waiting to come public.
This is a lot, he said, adding that the last time companies flooded the IPO queue was in March 2000.
There's too much inventory, so we're having a correction in equities, he said.
At first blush, there isn't a lot of similarity between
, the first being a community Web site purchased by
( NWS.A) and the second being an Internet phone service bought by
But both were bought to make their new parent companies faster, better and more attuned to younger people, Cramer said.
And to gauge whether these services are helping their acquirers, listeners can take note of how each company is handling the freebies that come with each service.
first hit the scene with lots of free stuff, analysts said the companies would never make money.
But each company found that it could make money through advertisements and fees for certain services. Cramer owns Yahoo! for his charitable trust
Action Alerts PLUS.
Cramer said that News Corp. has a very good chance of making money with MySpace, a site with about 30 million users. With numbers like that, he said the chances are high that someone will be in a buying mood, and advertisers think so, too.
However, eBay has waived even more Skype fees, a move that Cramer said shows the company is desperate.
It's giving away more free stuff, but the company has not yet found a way to bring in more revenue, Cramer said, adding that he would not be a buyer of eBay until it comes down some more.
Cramer took some time to go over one of his "10 Commandments," discussing the fact that one should never turn a trade into an investment.
For starters, a trade is held for only a short period of time and is bought for a specific reason. It is sold once the catalyst that you've been waiting for happens, Cramer said. An investment is held for a longer time, up to 18 months.
For example, say you bought
at $40 because you thought the quarter would be good. If the company reports a disappointing quarter and the stock begins to fall, do not hold onto it, Cramer said.
Do not rationalize keeping the stock just because your catalyst didn't come through -- because that would be taking a stock from a trade to an investment.
A caller asked Cramer for his thoughts about
Bank of America
Cramer told the caller not to be too worried about the big macroeconomic numbers coming out, specifically the upcoming consumer price index report, adding that Bank of America and
are poised to break out.
Bank of America just had a big buyback and offers a 4% dividend, Cramer said, adding that he would buy half of a position now and then buy the other half after the CPI number is reported.
If the inflation measure is strong and the stock goes down, then there is an opportunity to buy the second half of one's position on weakness.
He told another caller that
( ERTS), along with
( BKHM), reported good quarters but made disappointing pronouncements.
Electronic Arts said that it won't get its act together this year, while JDSU issued more stock in the form of convertible bonds, Cramer said. Bookham said that it had too much inventory.
Even though Electronic Arts is at its 52-week low, Cramer said that its slowing growth rate is making it an expensive stock.
Cramer said that he likes
, which is pretty much the only source of uranium around. This means that he company can charge whatever it wants, Cramer said; and nuclear power is going to be used more widely.
A caller wanted to know if now is the time to buy
, given the fact that Warren Buffett is buying the stock. He added that the company has exposure to
in Russia and to Venezuela.
Cramer said that he believes that the stock is a buy "right here, right now," and not just because of the Buffett factor. He said that ConocoPhillips is now the cheapest oil company, selling at only six times earnings.
has come down 15% on this pullback, and Cramer likes the company because it has proprietary technology to turn coal into oil.
He said he also likes
the "quintessential slowdown stock," because its business does well no matter what is happening in the economy.
He said that he would start buying the stock at this level.
Even though good positive news is coming out on the drug Tysabri, Cramer said that he would prefer to buy
Both companies are developing the drug, but Biogen has a lot of good things in the pipeline, while Elan only has Tysabri, he said.
Finally, he said that
is "really a dynamite company," that he believes is not done going up.
The company makes all the things that a business needs to operate, from HVAC products to lighting equipment. It has been a great stock, and Cramer remains bullish on it even though it is up 39% from last year.
At the time of publication, Cramer was long Countrywide Financial, Yahoo! and Commerce Bancorp.
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
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