CNBC’s Jim Cramer on Thursday gave investors a look at his procedure for determining stocks worth buying in a volatile market that’s facing pressure on various fronts.
The major U.S. indexes posted a second day of gains in the session after losses on Monday and Tuesday, but the “Mad Money” host said Wall Street “didn’t get what we desperately need, which is a better reason to buy more stocks here.”
“Let me walk you through my rubric for what’s worth buying in this treacherous moment,” he said.
1. Can’t rely on a trade deal
Who knows whether the next development in the U.S.-China trade war will be positive or negative? As the dispute continues to escalate, with the Trump administration expanding its blacklist of Chinese enterprises and the country’s relationship with the NBA souring, America’s technology and retail industries are caught in the crosshairs.
Cramer pointed out that Nvidia, Emerson Electric, Cisco and Apple face challenges.
“I want stocks that don’t need a trade deal to go higher ’cause I don’t know if we’re going to get a trade deal or not,” he said.
“When I was flipping through the S&P, a huge number of stocks were exposed to at least one or more of these flashpoints,” he added.
2. Immune to disruption
Cramer wants to stay out of the stock of enterprises that are prone to disruption.
Domino’s has admitted to facing stiff competition from other restaurants that have partnered with third-party delivery services, backed by venture capital firms to offer discounted prices, to expand their reach to consumers. FedEx is facing disruption in shipping from the likes of Amazon. Cable TV is being disturbed by online media such as Roku, while on-premise software companies are battling cloud software firms.
“Ask yourself if you’re looking at a company that’s going to be disrupted by competitors who are playing with free money or a superior technology,” he said.
“Right now, it feels like there are fewer and fewer stocks that are immune to disruption,” Cramer said.
3. In untroubled markets
The auto industry is in “awful shape,” which affects paint, glass, steel and other car suppliers, Cramer said.
“Anything with auto exposure is likely to miss numbers. That’s deadly in this environment,” he warned.
Aerospace is a “total no-fly zone” because the sector is being dragged down by Boeing’s 737 Max issue, and fossil fuels are “toxic,” he continued.
“Some markets are just too ugly to participate in at the moment,” the host said.
4. Withstands the Warren factor
Cramer has been flagging in recent weeks that “Wall Street is terrified of Elizabeth Warren” and chances the senator from Massachusetts has of winning the Democratic nomination and the White House in 2020.
Investors worry that the presidential hopeful’s plans for universal health care would harm managed care, policies would force banks into more regulations, Big Tech would be under assault and fracking “is out of the question,” the host noted.
Those apprehensions are overblown, at least for Cramer.
“My view means nothing here, though, not when Wall Street regards her as the second coming of Lenin,” he said.
Earlier Thursday, Cramer put 300 stocks to the above test and said that he found just four names that passed all of those standards. Furthermore, investors must beware that “nothing will be protected from the huge waves of S&P futures selling.”
“This is an unhealthy moment for our market,” Cramer said. “Sentiment is extremely negative, but occasionally, rarely, the sentiment can be correct. If we don’t get some sort of trade deal on the president’s terms, then all of this bearish sentiment … might turn out to be right.”