CNBC’s Jim Cramer on Tuesday laid out his playbook for the next three-month period and broke down his predictions of what could be the best performing parts of the market next quarter.
“Just like the first quarter, I’m betting the second quarter will be bad — maybe not as bad as it could be, though,” the “Mad Money” host said. “Still going to be very tough, though, which is why you need to stick with the staples, the utilities and the stay-at-home-economy tech stocks.”
The comments come after Wall Street, shaken by both the coronavirus outbreak and an oil price war, experienced its most challenging stretch in recent memory. The Dow Jones fell about 413 points during Tuesday’s session to close out its worst first quarter in its 130-year history.
Since the start of the trading year, the Dow has fallen more than 23% to 21,917.16, the S&P 500 dropped 20% to 2,584.59, and the Nasdaq Composite tumbled more than 14% to 7,700.10.
With social-distancing orders in effect, the deadly pandemic has pushed people inside and hampered the consumer-based economy in the U.S. and the global economy at large, leading to historic layoffs.
“The pandemic has robbed American consumers of their” consumption, so “the consumer economy is dead,” Cramer said. “However, in a total oddity, parts of the business-to-business economy are doing very well.”
Cramer warned that gross domestic product could take a 30% hit.
He likened his investment approach to a barbell. One end is made up primarily of defensive stocks that can work through the economic fallout of the coronavirus pandemic. On the other end are companies that will perform post-pandemic.
Consumer staples such as Mondelez International, PepsiCo and Conagra fit the former basket. Drug plays such as Johnson & Johnson and Bristol-Myers Squibb are also included. Stay-at-home tech names like Zoom Video Communications, RingCentral, Citrix Systems, Cloudflare, Advanced Micro Devices and Nvidia also made Cramer’s cut.
The stocks that Cramer deemed attractive once the epidemic clears up are Disney, Boeing, Costco, Amazon, Walmart, TJX Companies and Honeywell.
“The barbell’s curiously imbalanced because, aside from the staples and a few select techs, not many things are investable when the economy takes a huge header,” he said.
Bank stocks are a tough bet due to the state of the mortgage business, oil can’t be touched, retail is risky outside the big-box names, and travel and transports won’t return until consumers begin vacationing again, Cramer said.
Looking further ahead, Cramer said he thinks consumer tech will bounce back in the third quarter. Apple, Google-parent Alphabet and Facebook are in that mix.
Still, there’s “no need to rush into any of them. We need to make it through the second quarter, and that second quarter is going to be so ugly,” Cramer said. “It’s going to be like 2007-2008 all over again.”
Disclosure: Cramer’s charitable trust owns shares of Apple, Alphabet, Facebook, Disney, Costco, Honeywell, PepsiCo, Johnson & Johnson, Bristol-Myers and TJX.
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