Where to make money now

A lot has changed in the past 3 months. Here are the best stock opportunities for the second quarter.

By Jim Cramer Mar 22, 2011 7:24AM

Jim CramerWhen we zoomed into the first quarter, we had a multi-cylinder market.


Smart devices were powering a tech boom. Big exporters were taking advantage of robust economies in East Asia and a renewed Europe that seemed to put its troubled finances behind it. Banks, having paid back TARP, were ready to return capital. Health care, freed from the cloud of regulation, seemed ready to take off.


What a difference three months can make. European debt concerns resurfaced, and interest rates have climbed ever higher in Portugal, Greece and Spain. North Africa and the Middle East played dominoes, started by political uprisings in Tunisia that dropped into Egypt and then headed for Bahrain and Saudi Arabia before landing in Libya, driving oil up to $100 a barrel in their wake.


An earthquake and tsunami slammed into Japan, causing tragedy and fear in the markets, courtesy of runaway nukes, that was unprecedented. Besides the incredibly sad loss of life, the ensuing destruction seems incalculable, given the inability to reach some areas or the isolation of regions affected by radiation fallout.

Action Alerts Plus

Major benchmarks have stalled after climbing by double digits during the previous two quarters. Where do investors go from here?


Let's start with where they shouldn't go in the second quarter:


1. China. Chinese inflation has gotten away from the government, something a planned economy can't tolerate. We had escaped any real slowdown from China's interest rate increases until near the end of the quarter, when telecom equipment makers Finisar (FNSR) and Ciena (CIEN) signaled that business in China was slowing.


Finisar went as far as to say there's a telecom equipment inventory "correction," meaning too much equipment and not enough demand. The guidance cut Finisar shares in half and had a deleterious effect on all the tech stocks that sell to the cellphone equipment and broadband sector.


2. Tech stocks. Tech could have withstood the shock of too much inventory in one country, even one as powerful as China, if it ha been the only soft story out there. But a growing glut in the tablet computer market will likely create more problems for the industry.


Company after company has tried to mimic Apple's (AAPL) wildly successful iPad, flooding the market with perhaps 100 million extra tablets. However, Apple recently unveiled an upgraded iPad that's considered so vastly superior that it will probably crush demand for also-rans. That's a lot of product for computer makers to be stuck with, and a lot of lost orders for parts suppliers. AT&T's (T) plan to buy T-Mobile will add to suppliers' woes by making it easier for the telecom giant to demand lower prices.


While I still like Apple and own it, along with EMC (EMC), Accenture (ACN) and Oracle (ORCL), I believe tech should not be emphasized for the second quarter.

Here's where investors will find the best opportunities:


1. Banks. Financials, which do best in an economic rebound, will probably be one of the best-performing sectors. Go with the cheapest banks, such as Bank of America (BAC), and the best-run, which is PNC Financial (PNC).


Bank of America will likely gain during the second half of 2011 as housing and employment come back. PNC, which hasn't avoided the troubles that have plagued the industry, has been raising its dividend and buying its stock, something I expect to happen this spring.


2. Industrials. Demand for food and ethanol is increasing worldwide, boosting the prices of commodities. The car and housing industries are coming back in the U.S., and more than $150 billion in reconstruction work might be needed in Japan.


For industrials, Caterpillar (CAT) and Deere (DE) make the most sense. Caterpillar is going to get more than its fair share of business from the Japanese reconstruction. Deere? High food prices will mean wealthier farmers, which will mean more equipment purchases.


3. Metals and mining. These industries are best played with Alcoa (AA), which also offers a bet on the nascent aerospace cycle and demand for natural-gas turbines, a trend you can expect after the nuclear catastrophe in Japan.


I also like Vale (VALE), the huge Brazilian metals company. It's a veritable supermarket of minerals that countries will shop as they build their infrastructures, driving prices higher.


4. Energy. Oil prices will probably stay above $90 a barrel as long as the conflicts in the Middle East and North Africa continue. That means oil, natural-gas and coal producers will see a lot of activity.


There are lots of ways to win. I like Weatherford International (WFT) as a driller, Apache (APA) and Hess (HES) as two fast-growing majors, and Southwestern Energy as the cheapest natural-gas play. This sector must be overweighted.


5. Retail. Retail has a bunch of winners. Lowe's (LOW) offers a catch-up play to Home Depot (HD). And Kohl's (KSS), the cheapest of the department store stocks, is returning more capital to shareholders than any other retailer in the form of dividends and buybacks.


Many people aren't intrigued by the market if tech stocks aren't playing a leadership role. Me? I always prefer the mainstay industrials and banks as leaders. That way you have a broader advance and one that is more self-sustaining and less hostage to product cycles and cutthroat competition.


Plain and simple: I am a buyer, despite the pessimism surrounding the market. I expect stocks to rebound from declines in recent weeks, with a wider variety of companies leading the way this time.

Time to pull the trigger. Just be sure you do it with different stocks this time around.


Cramer holds shares of Alcoa, Apple, Accenture, Apache, Bank of America, Caterpillar, Deere, EMC, Hess, Kohl's, Lowe's, Oracle, PNC, Vale and Weatherford in his Action Alerts PLUS charitable trust portfolio.


-- Jim Cramer runs the charitable trust portfolio, Action Alerts PLUS, and writes daily market commentary for TheStreet's RealMoney premium service.


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Mar 22, 2011 12:49PM
Hmmm John Deere could be a good pick but not necessarily because you think farmers are going to get rich due to grain prices. Wouldn't higher oil and gas/diesel drive up farming costs therefore causing farmers to abstain from unnecessary purchases of new equipment? I'm sorry I just have a hard time buying into anything Cramer says as having one ounce of credibility. You should have been on the Caterpillar bandwagon 6 months ago.
Mar 22, 2011 1:20PM
Cramer knows nothing. He screams and yells, and rings his bell and jumps around like some idiot, or some crazed genius, but DO NOT take anything he says seriously. He is a flamboyant showman, that's all. He has cost many investors millions. Do not listen to his advice
Mar 22, 2011 2:11PM
Why would anyone in the world pay the slightest attention to this fool Cramer?  For me Cramer represents all that is wrong with so-called stock analysts and various touts pushing their clueless guesses at gullible investors.  Can anyone remember Cramer's frenzied 'advice' to buy more, more, more equity stocks almost literally hours before the crash of 2007/2008?  And then his silly-a** tears and anguished apologies for it later?  Hey, if you want to follow Cramer I have a better deal:  Let me sell you a slightly used bridge, instead.      
Mar 22, 2011 2:30PM
It's almost like he reads the last six months of market trends and tells you to buy what has already gone up. Therefore he is telling you to buy high and hang around while he sells his and you get stuck holding the bad stock. Maybe he thinks he is a day trader that can actually influence his portfolio trading buy and sell points to his advantage by giving bad advice.
Mar 22, 2011 5:16PM

If there is oil in North dakota and in canada,why can we just drill here Instead of buying over sea's.

I have heard about the sweet oil in the dakota's. it would be great to be able to get it from here instead of foreign oil.

Mar 22, 2011 12:59PM
Cramer is a whack case.  His financial advice will lead you to bad investing and substantial loss.  Surprise network still has him on.
Mar 22, 2011 1:26PM
I agree.  The stocks I bought on Cramer's recommendation went down, down, down.  The ones I found on my own went up.  I don't know why he's still on TV either.
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Mar 22, 2011 5:24PM
Well yippee.  I own a couple that he recommends.  Bet they go down from here.
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