Cramer: Which Dow Stocks Are Vulnerable?

NEW YORK ( Real Money) -- With the Dow barely positive for the year and with the visions of previous spring swoons dancing in our heads, it might be worth a moment to figure out which stocks in the averages could take us down and whether it is reasonable to expect that they will.

What we are fearing, obviously, is the 1,000 point bruising we got from Dow 10,700 in May of 2010 through the summer and the hideous 2,000 point May-until-October annihilation that 2011 gave us.

The worries are justified. Europe's in collapse mode and all but Germany's well below our average's performance Incredibly, given its location, Germany's still up 5% from where the year began.

Now, of course, any average can have a wholesale reversal. We are seeing from the dramatic underperformance in the master limited partnerships so far to date, 1,000 basis points in weakness vs. the benchmark S&P, that yield's not protecting jack right now. Or at least these yields aren't. We also know that the pull of the foreign markets can overwhelm even the best of the domestically-based Dow stocks, but the bounceback tends to be pretty pronounced in those stocks.

So, with those caveats who can do the most damage in the Dow from here? Who would take the averages down another 10%, the big fear out there on top of the 700-odd points of decline we have already had from 13,300? Who is, for the purposes of this analysis, VULNERABLE?

First would have to be the oils. Exxon ( XOM) is down 3% and Chevron ( CVX) is down 5% this year, and while Chevron at least gives you 3.5% yield protection the Exxon yield of 2.79% doesn't mean jack. This group is in freefall. I don't see it stopping yet because we seem to be replaying last year's decline. The good news, though, is that even with a 2011 perspective Chevron sold down to only $90. But the bad news, Exxon hit $67. I think Chevron could bang us until it yields 4%, still a little ways, but Exxon, which reported a disappointing quarter, could decline another 7-8% fairly easy. Call Exxon vulnerable.

Sticking with the resource and resource-related portion of the Dow, you can't help but wonder where Caterpillar ( CAT) is going to fall to. Could it reprise its trip to $70 from last year? Given BHP's comments last night about the slowdown in commodity capital equipment spending, I am saying that $70 is not out of the realm, but an $80 move is probably likely given the lack of dividend support.

Call CAT extremely vulnerable.

The other industrials seem to be on firmer footing. United Technologies ( UTX) and 3M ( MMM) both reported excellent quarters. They can be taken down given their less than 3% yields, but their businesses are diversified and strong. They have Europe, but they also have some secular positives. Call them not all that vulnerable. DuPont ( DD) missed its projections last year, but it has much going for it right now including strong life sciences, ag, housing and auto exposure. I think it is a $50 stock with a 3.45% yield that everyone would be crazy about owning. 4-5 points down. I am saying not all that vulnerable.

General Electric's ( GE) quarter wasn't perfect. The gross margins were a tad disappointing, but at $16 and change you have about a 4% yielder with another dividend boost around the corner. Let's say it is relatively safe. Alcoa's ( AA) got tons of Europe, but has taken drastic action to bring its costs down. Can it go to $7? The way it is trading it can. Have to wonder whether, despite its total commodity orientation, it doesn't get saved by the aircraft, turbine and auto build. China can only do so much damage. Not all that vulnerable.

The retailers are resilient, buoyed by the decline in gasoline. If they haven't hit Wal-Mart ( WMT) more than this off the Mexican scandal I don't see a lot of vulnerability. After going through the Home Depot ( HD) quarter call, I was surprised that it went down much at all. Both seem not all that vulnerable.

Speaking of just reporting, Disney ( DIS) put up monster-good numbers. Given the strength of a new multi-billion brand that didn't exist 21 days ago, plus robust themepark and ad rates, Disney has to be one of the least vulnerable stocks in the Dow.

The recession-resistant names are also the commodity-decline-beneficiary names. They not only seem not vulnerable, but they seem to be in a position to gain price. I think that Procter & Gamble ( PG), off its myriad restructurings, Johnson & Johnson ( JNJ) with its new management, Merck ( MRK) with its already reduced earnings targets and Pfizer ( PFE) with its already acknowledged decline in Lipitor all look like buys. So much for vulnerability there.

We are buying Kraft ( KFT) for the trust ahead of the split into two companies because both are huge beneficiaries of the commodity declines across the board, but particularly gasoline.

So is Coca-Cola ( KO), where truck fuel is one of the main variables, and packaging costs seem to have some upside. The only weakness here will be a strong dollar. Not all that vulnerable and maybe positive.

Tech's not all that worrisome because of yield and product cycle support. Intel ( INTC) and Microsoft ( MSFT) are going to be huge beneficiaries of Windows 8 and Intel is going to gain share in communications and servers with its new lines of chips coming out right now. Given that both had extremely strong quarters, I would be a buyer of both right here. Not Vulnerable and maybe positive.

Cisco's ( CSCO) ALREADY been crushed. How about WAS vulnerable? Let's put Hewlett-Packard ( HPQ) in the same camp. Was real vulnerable, but I think it is much less vulnerable at $22, but $20 seems reasonable.

IBM ( IBM), because it has so many points in it -- hey it's a silly-weighted index --presents vulnerability. But the buyback and the soundness of the actual earnings gives you a nice floor. How about somewhat vulnerable?

JPMorgan ( JPM) feels like Cisco. It now is MUCH LESS VULNERABLE because of the swoon. That swoon has included Bank of America ( BAC), which while still up 30% for the year, looks like a stock that is worth picking up at $7 given the housing floor we see brewing and an improving balance sheet.

While we just sold American Express ( AXP) for Action Alerts Plus, the quarter was terrific and I know there are buyers underneath. Travelers ( TRV) reported a fantastic quarter and has shown no degradation during this selloff. I would call Express vulnerable to $54 and Travelers only to $62.

AT&T (T) and Verizon (VZ) have run gigantically and yet I don't know a soul that doesn't want in given their totally domestic businesses and remarkable wireless growth and wireline recovery. Call them not vulnerable to much of a decline at all. I want to buy them down a point and two points respectively.

Which leaves two stocks that have fallen that could fall more but I think that they have catalysts that could halt their declines: Boeing ( BA) and McDonald's ( MCD). The former has the Paris Air Show coming up and I think it is going to show big share gains vs. Airbus which reported a decent number last night. McDonald's is already down a lot and I think is factoring in a real slowdown in numbers that now might not even happen.

Limited vulnerability to both.

So, all in all, the index, while subject to a decline that could take it even for the year without much difficulty, seems better with very few stocks on the VULNERABLE list and many more on the hope-they-come-down-so-I-can-buy-them list.

Frankly, a small decline wouldn't shock me from these levels. But a big decline a la 2010 and 2011? That would be hard for me to get my arms around without a total collapse in Europe. Unfortunately that, in itself, is not out of the realm. So despite the attractiveness of so many of these stocks, it remains a possibility.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long BA, DD, GE, IBM, JPM and KFT.

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