Tackling the sector rotation dilemma

It may be time to move money out of some industries and into others, but which stocks to choose?

By Jim Cramer May 7, 2013 9:02AM

thestreet logo

Stock market report © CorbisOne minute you can't own enough drug stocks. The next minute you can't own any drug stocks. Same with the foods. But where to go?

Do you go to the worst, knowing they can only get better? Or do you go to the good, knowing that they are good?

I have been in this dilemma many times in my life and I have always resolved it in a practical, but chicken, way: pick the worst who have already told you things are bad. That way you won't be shocked when they stay bad.

Along these lines you can make a case for Cliffs Natural (CLF), Vale (VALE) and Alcoa (AA). Cliffs Natural and Vale are iron-ore plays and nothing's more in glut in iron ore than aluminum, hence Alcoa. Here are three companies that are still being shorted, still being bet against with everyone writing them off. Vale, no matter what it does, is known as one of the absolute favorite hedge fund shorts because of its relationship with China. The shorts don't care about the yield, they think the dividend's a goner even if it was just declared.

Alcoa? The rap here is that it needs to do an equity offering to satisfy the ratings agencies. No matter that it is closing expensive capacity in Europe and building cheap capacity here. The company's extremely well run, but it doesn't matter as long as aluminum is in glut. But take a look when it wasn't in 2007. You get a fivefold hit.

Cliffs is the most difficult of all. First, its balance sheet is improved ever since it did what, in retrospect, was a brilliant deal offering stock at $29. Unfortunately, everyone who bought in on it was crushed, something I know I didn't see coming. Second, not that long after, a major brokerage said that Cliffs is about to fall victim to a major expansion of iron ore sales in this country, which sounds suspiciously like what happened to the old Cleveland Cliffs when there was too much iron ore. So, it became a free-fire zone.

What do you do? Alcoa's a call already, by virtue of its $8 stock. Vale can be done in Sept. 15 calls for a couple of bucks and Cliffs October 15s for 6 and change.

You want to match it with something on the other side? Neither Bristol-Myers (BMY) nor Amgen (AMGN) had the growth I expected. Puts could be in order.

Now, I am reluctant to short anything here because the sector rotations are very swift. But a long call/common CLF, Vale, AA, long put Amgen, BMY (preferable the in-the-monies) might be the way to play this next leg.





Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long VALE.



More from TheStreet.com

May 7, 2013 10:56AM
Bobo Numnutz has been trumpeting Alcoa for nearly 2 years now ......from $19 all the way down to $8 .....last year he even said he would short it at $8 ......
May 7, 2013 11:34AM

The Markets are giving me a little "warm fuzzy" this a.m.


But I had a better one earlier here, sitting in the chair; Must be time, to change the Depends??

May 7, 2013 11:31AM

If Bobo says buy, sell. If the sell signal is on, buy....Remember the Buffet, Buy on fear, sell on greed.


Or the best advice ever given by anybody; Whomever "anybody" was?? Buy LOW, sell HIGH.!!



May 7, 2013 1:42PM

Unions as I've known them have never been to hard to negotiate with....


I don't know of ANY union that wanted their Company to fail....That's just stupid.

"the hand that feeds,yada,yada..."

Most Contracts were about Benefits, Healthcare, Safety, pensions and long term employment with COLA type raises....Few were ever about a "lot of Money"....Workers just wanted to keep up..


I always saw lower levels of Management agreeing with most Union demands..It made their jobs easier....A happy workforce, lesser tensions, more productivity and raises for management too.

Usually that's how most worked out in a Good Company...I was on both sides of the fences..

Never road the fences, very bad practice, and was always happy where I worked.

May 7, 2013 11:06AM

I moved money out of metals, alum,iron,palladium a few years ago...Too many cycles to watch.

Decided only to concentrate on PMs and that hasn't worked too well lately.

May 7, 2013 4:39PM
What started like a not so promising day ended up as sweet as the come....This market keeps climbing and scumbags are pulling their hair out, sort of funny to be truthful...Oh, they will have their days, have no doubts about that; what goes up must come down at some point but then hopefully we will attract some of the millions of dollars we have sitting on the sidelines and climb even higher...Once again, thank you Lord this market has very little to do with our awful economy.
May 7, 2013 4:02PM


Nice day.  I've almost got enough money for a Hoverround chair.


But then, there was the baker union that killed the Twinkee.  Booooooooo.



May 7, 2013 3:14PM
Slow day for banter (ABS and thers over on Jubaks article doing their thing), but a solid day for the DOW, I think i'll take this kind of day any day.
May 7, 2013 10:12AM
hmmmm.....i work at a company that has ties in the metals industry.  it's a cyclical industry ENDING it's typical down cycle.  yet craemer doesn't consider it ready for another climb?  or he DOES know and doesn't want to say that? 
May 7, 2013 12:48PM
See, IMO, this was a very short, simple, but thought provoking article.

As far as Alcoa goes, they are one of THE premier "economic" barometer companies.  If Alcoa's sales are up, some economy somewhere is booming.  If they are down, the global economy is down.  The one thing that is slightly odd about Alcoa is that they've flown under the radar as a union shop.  Just about everywhere else, unions are making a big stink about whatever.  But for some reason, this doesn't happen much with Alcoa, or John Deere for that matter.  I remember there being a couple of picket lines for a short time back in the 80s, but for the most part, John Deere and Alcoa seem to be able successfully negotiate with the unions without giving away the farm (pardon the pun).  This may change in the future, and I'm too lazy to go look up when their current contract expires.  It's possible that Alcoa and the union will suffer from some tense relations somewhere along the line, depending on that particular union's leadership.  For now, they appear to be one of the least politically active, politically motivated unions out there.  And it wouldn't be a surprise if Alcoa and the unions continue to get along for decades.  It's also possible that they could be somewhat radicalized, like the teacher's union in Wisconsin and others.  Just something to think about moving forward.

May 7, 2013 10:52AM
Why are there articles like this? It was Monday and Bernanke opened the free money window to his banks and banksters yesterday. It was a nice day so they let it sit on their desks next to the cocaine dispensers and played a few rounds of golf. Back today to push for new records. It doesn't matter if the economy is gone and the NRA is handing ourt shotguns... as long as Wall Street wins, it's the ONLY thing that counts.
May 7, 2013 3:12PM
Prisoners pay $30 a smoke in NYC prisons but cocaine is FREE on Wall Street.
May 7, 2013 2:37PM
Your right Tog. Unions and companys generally have done a better job coming together in recent decades. They realize that long periods of fighting is to costly for both. There are exceptions however were one side or the other gets stupid. One that comes to mind is Republic Hose, a small town company that the town was dependent on. The company was strugling and ask for some concessions from the union to cut cost, mainly reducing the number of union stuwards in the co, They had 34. The union refused to give up the jobs to save the co. The company closed. The workers ending up buying the company to save there jobs. They cut the shop stuwards to two. Don't how it worked out, quit following after the employees took over. There are a number of stories like this in the small business world were the unions stuck to their guns to long or often the companys didn't start working with the unions soon to save themselvs. Sometimes times it's union adminastrations that are at fault and not the local membership itself. The administrations sometimes have there interest ahead of the members.
May 7, 2013 11:38AM
What happened to the Red Banter ??
May 7, 2013 10:11AM
Quiet today ??......So many Articles, so little time.
May 7, 2013 10:19AM
Not a warm fuzzy down here today; yes, we opened up but at 1010 hrs manipulators started doing their thing and most of the gains are gone....We had a feeling about this yesterday after the close, that's why we said today would be a completely different story...Oh well, still early, we will see what happens...News have been ok, but, when do they move markets...More later.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.