"The market's got a bad case of 'LGQ,'" or Last Good Quarter, said Jim Cramer on his
"RealMoney" radio show Thursday. This happens every time at the end of a cyclical expansion when the economy starts running out of gas, he said. Companies like Phelps Dodge ( PD), Caterpillar ( CAT) and Black & Decker ( BDK) have reported good quarters, but investors don't believe the good times will last, he said. "LGQ" also has been affecting natural gas stocks, oil stocks, mineral stocks and fertilizer stocks, said Cramer. Or, for example, take the homebuilders. "Is there anything they can possibly say" that would stop those stocks from going down? asked Cramer. A leadership change is occurring, he said. Stocks of companies that are resistant to an economic downturn will do well in this stage of the cycle, he said. That means you need to look at stocks like Colgate ( CL), Unilever ( UN), Procter & Gamble ( PG), Kimberly-Clark ( KMB), Schering-Plough ( SGP), Wyeth ( WYE), GlaxoSmithKline ( GSK), Genzyme ( GENZ), Gilead Sciences ( GILD), Amgen ( AMGN), Genentech ( DNA), Coca-Cola ( KO), PepsiCo ( PEP), General Mills ( GIS) and Kellogg ( K). The one exception to Cramer's rule that defensive stocks work here is high-growth tech, he said. Big-screen TVs are doing OK, and that means Corning ( GLW) and Best Buy ( BBY) are OK. Cell phones are strong, he said, which means Motorola ( MOT) should do well despite the economic downturn. Cramer expects video games to remain strong, which means Electronic Arts ( ERTS) and GameStop ( GME) are buys. Finally, anything that makes good use of fast Internet should be OK too, he said. Economic downturns usually last a few months, said Cramer, and the first stocks that work coming out of a downturn are the financials, he said. Indeed, bank stocks are bottoming now, he said. Cramer will look to position himself overweight the financials in the next few weeks, he said.
Use strength to sell stocks like Phelps Dodge, Deere ( DE), Ingersoll-Rand ( IR) and United States Steel ( X). Unless these kinds of stocks do something special such as declare a special dividend or buy back stock, you'll be fighting a cyclical headwind, he said. Additionally, "all of the really, really good oil, natural gas and mineral stocks are now going to be trading vehicles," said Cramer. Cramer believes that if you have patience, the cyclical stocks will be fine. But, in the meantime, the economy has peaked and people will sell everything at first. If you can't take the pain, you should get out, he said. In response to a question about General Dynamics ( GD), Cramer said people are worried that President Bush won't be able to keep up the high level of defense spending. That sentiment is also affecting Boeing ( BA), he said. The aerospace side of General Dynamics and Boeing are still strong, though, said Cramer, and although the recent declines in their stocks are part of the sector rotation into more defensive stocks, Cramer believes the decline will be contained to last week's levels. Commenting on Halliburton ( HAL), Cramer said he has no idea if the next move for the stock is up $5 or down $5. Cramer had liked Halliburton as long as the economy stayed strong, but things are deteriorating. If you can ride out the downturn, Halliburton will be fine, he said. Otherwise, you should take something off the table. Cramer said although he now believes Google ( GOOG) should go to $450, he would recommend taking some off the table if he had a big gain so as not to be a hog. Bulls make money. Bears make money. Pigs get slaughtered, he said. In response to a question on United Parcel Service ( UPS), Cramer said the stock is a "fairly decent way to play China," but it needs a strong economy to do well. He believes it is dead money until the economy picks up again.
In Thursday's "Stump Cramer" segment, in which callers ask about obscure stocks, Cramer was tripped up by Enbridge ( ENB), Fremont Michigan Insurance ( FMMH), Hewitt Associates ( HEW), HMS Holdings ( HMSY) and Home Solutions of America ( HOM). Commenting on Raven Industries ( RAVN), Cramer said Raven was a "really, really good company" and was the kind of company he believes will be in the sweet spot for the next big leg up in the market where niche companies in the $500 million to $1 billion market-cap range are bought by larger companies. Cramer always thought Honeywell ( HON) should buy Raven, he said. In response to a question about Fortune Brands ( FO), Cramer said he would hold the stock. Because the economic downturn will affect its home and hardware products, Cramer believes the stock is headed back to its 52-week low around $72. But Fortune Brands is a much better company now than it was the last time its stock was at this price, he said. Fortune Brands traded at $74.23 late Thursday. Cramer said Pixelworks ( PXLW) is "too hard" for a very bad market like this. Cramer would recommend Corning as a play on big-screen TVs instead, but he would wait for Corning to cool off a little before pulling the trigger. XM Satellite Radio ( XMSR) reported a wide quarterly loss and disappointing results converting new car buyers with free trials to paying subscribers, said Cramer. The thesis has always been that once people get XM in their cars, they will sign up for the service. Automakers account for 50% of XM's sales, said Cramer. XM converted 56% of new-car-buyer free trial customers to subscribers in the third quarter, down from 58% in the second quarter and 60% in the year-ago third quarter. "It's worrisome," said Cramer. XM is a "very, very speculative situation" right now, and he believes the stock is going down before it goes up. Finally, Cramer believes Toll Brothers ( TOL) is dead money for three to six months. He had thought the stock would bottom around $35, but his technical advisers say the stock has another leg down. If Cramer owned it, "I don't think I'd bother to sell it." But he wouldn't buy or initiate a position, yet. He wouldn't short it either, as it is too far down, he said.