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NEW YORK ( TheStreet) -- There’s a battle going on out there, Jim Cramer told his Mad Money viewers on Wednesday. The S&P 500 slid some 1.6%, despite crude oil prices dropping 4% to new lows just above $60 per barrel. But there is also some good news and that's where Cramer wanted to focus first.
U.S. consumers benefit from the decline of oil prices, giving them more disposable income they can spend at places such as Costco Wholesale (COST) and Restoration Hardware (RH) , among other places, he said. Considering that 70% of U.S. GDP is driven by consumer spending, falling oil prices should be good news for retailers.
On the bad news side, lower prices weigh on the energy companies, especially those with high levels of debt. If oil prices don’t rebound, these companies won’t be able to repay their debts, Cramer explained. Lower oil prices also hurt many emerging market governments and larger foreign companies like Petrobras (PBR) .
The bottom line: If oil prices fall significantly below $60 per barrel, the negative effects on certain companies and countries could outweigh the gains seen from higher consumer spending, at least in the short term, Cramer said.
Hidden Oil Exposure
With oil prices crashing, Cramer isn't crazy about investors having too high an exposure to oil. But that exposure can come in different forms.
For instance, BOK Financial (BOKF) , Cullen/Frost Bankers (CFR) and Hancock Holding (HBHC) are all financial companies. But did you know they have exposure to the energy sector through lending? That’s right, all of these companies have exposure to oil prices, which will pull down the share prices when oil declines. There’s really no reason to own these stocks, Cramer said.
The valuations are not any cheaper than other financial stocks, which is why investors are better off in larger financial companies or even just the Financial Select Sector SPDR ETF (XLF) .
Junk bonds are another group that has exposure to oil prices. Energy stocks make up 16% of the junk bond market, so Cramer considers these funds to be too risky for investors and not worth the risk.
And while the general consensus is that airline stocks are the biggest beneficiary of falling oil prices, some discount lines, like Spirit Airlines (SAVE) , could receive competitive pressure from startup airlines that rely on older, less-fuel-efficient aircraft.
Since oil is so much cheaper, these startups can now afford to be in business. This could also weigh on Boeing (BA) , as fewer airline companies will feel the need to upgrade their aircraft to the more efficient models.
The bottom line: Be aware of the stocks that continue to get hit when oil prices go lower such as like Conn’s (CONN) or Tesla Motors (TSLA) because that relationship is likely to continue, Cramer said.