Despite the stark selloff in energy stocks this week, don't lose focus on what propelled the stocks higher in the first place, said James Cramer Friday on his
"RealMoney" radio show. At the core of what has been driving the stocks is demand from China and to a lesser extent, India, he said. Those fundamentals haven't changed. Don't become too focused on short-term inventory data, figures from Hurricanes Rita or Katrina, heating oil, the amount of gasoline pumped or our inability to conserve, said Cramer. Until demand from China and India is quelled and new reserves are found, the fundamental picture of demand and supply isn't going to change, he said. Nevertheless, Cramer listed five negatives and five positives for owning energy stocks. The negatives, as he sees them, include: 1. Momentum funds: These funds buy energy stocks aggressively on the way up and dump them with abandon on the way down. 2. The declines in energy stocks have become brutal, taking away much of the fun in owning them. 3. The media and analyst community seem convinced energy prices are going lower. 4. Energy stocks could have "quicksand" underneath them as a result of going up so far, so fast. 5. Energy stocks are no longer under-owned. The positives include: 1. No other companies have earnings revisions upward as big as what you can expect from energy stocks. 2. We're not discovering a lot of new energy reserves. 3. Terrorist attacks often cause energy prices to rise, and there will surely be more terrorist attacks. 4. Takeovers in the energy sector are likely to pick up again now that energy stock prices have fallen. 5. A big investment theme like energy usually isn't over in 18 months. Such themes usually last three or four years before running out of steam.
The bottom line, said Cramer, is he is still bullish on energy stocks. But when the group rallies, he recommends taking profits with the expectation of buying the stocks back after a correction. "It's vital that you trade around these positions," he said. RealMoney.com contributor and Stocks Under $10 co-author Will Gabrielski joined Cramer to discuss stocks brought up during Thursday's "Stump Cramer" portion of the show. Gabrielski was not a fan of New Dragon Asia ( NWD), Tiens Biotech Group ( TBV), Cheetah Oil & Gas ( COGL) or Beacon Power ( BCON). Gabrielski did like RBC Bearings ( ROLL), saying the company had "flown under the radar" since its IPO in August. He believes the stock will do well once the company has traded for a while and has developed a track record. Commenting on Distributed Energy Systems ( DESC), Gabrielski said he believes it will have a good quarter. Cramer concurred adding that the stock is "rockin'." In response to a question about index mutual funds, Cramer said he liked the Vanguard Total Stock Market Index fund but he preferred the Vanguard Mid Capitalization Index fund. Cramer is not a fan of CMGI ( CMGI) saying the company "blew the quarter," and it does not fit the Cramer tech rally. In response to a question about Amcol ( ACO), Cramer said the company has a track record of being promotional. A caller asked how closely Halliburton ( HAL) is levered to oil prices. Cramer said Halliburton is not as levered as some oil companies because of its engineering and construction business. The companies most levered to oil prices, said Cramer, are Transocean ( RIG), Noble Energy ( NBL) and Baker Hughes ( BHI). Cramer was intrigued by a question about Microsemi ( MSCC) saying the stock sounds like a terrific idea. In response to a question about CVB Financial ( CVBF), Cramer said the stock was expensive, but it operates in a fantastic growth area. He would like to see the stock less expensive before buying.
Finally, Cramer said he is maintaining his pro-energy bias and believes we're within four or five dollars of the low in oil prices. He also said Valero ( VLO) would not go up as a result of the refinery bill in Congress.