Stick with strong stocks, especially now

The really bad stuff you might be cycling into will simply not hold up as well on a pullback.

By Jim Cramer Mar 15, 2013 9:19AM

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Stock market report CorbisWe've got the Replacements out there right now!

That's right, we are now picking stocks to replace perfectly good ones that we sold because we thought they were done rising, or because we feared that they would be vulnerable to the FBFH -- the Federal Reserve's Bolt From Hell -- which is the new term I am inaugurating to describe the moment when central-bank chief Ben Bernanke goes from bond-buyer to bond-seller.

The FBFH is so widely anticipated that Friday morning I heard someone predict it would transpire by Memorial Day -- that you know the best stocks are being sold lest they be struck by Bernanke lightning.

For example, we trimmed some retailers from the Action Alerts PLUS portfolio in part because of the anticipated FBFH. But now what are you supposed to do? Are you supposed to replace Costco (COST) with Big Lots (BIG) because one's up and one's lagged? Is this the chance to replace 52-week-high achiever Macy's (M) with cellar-dweller J.C. Penney (JCP), especially after my friend Scott Wapner at CNBC broke that story about the troubling aspects of Penney's balance sheet?

Do you replace, say, Cummins (CMI), because it has moved up so much, with a stock like Emerson (EMR), which has moved up less but isn't as good?

You sold Accenture (ACN), thinking it has to come in because of Europe or the FBFH, and it doesn't. Do you now say something like this? "You know what? I will go buy Hewlett-Packard (HPQ) because maybe its consulting business is coming back." Is that prudent?

You sell a high-quality semiconductor-equipment company, but tech has lagged and now it is coming on strong. It is time to buy some Applied Materials (AMAT), which isn't as good but at least hasn't moved as much? Do you really risk trading down in quality just because you need to replace a stock to gain exposure, particularly to what may turn out to be a less vulnerable area of the index?

The replacement factor is figuring huge here, because without a pullback, the cash is just killing managers. If you take your cash position up, say, to 10%, the stocks you do own have to do an awful lot of heavy lifting in order to stay pace with the S&P 500 ($INX). Forget beating it; that's almost impossible.

So you sell, because of the FBFH, and it doesn't strike, and the market keeps going, and you have to put something back on. You can either admit defeat and go right back in at a higher level, or you trade down and risk the replacement factor, like the replacement referees at the NFL or the replacement players during the NFL players' strike.

For many portfolio managers, this is a new phenomenon. They know markets can't keep going up like this. But they also look at their run-ups and they see the basis points growing between the red-hot averages and where they are, and they start taking risks and trading down.

It is only after they have traded down -- putting that sidelined capital to work, and thus finding themselves in inferior merchandise, or without any shorts -- that the market can have a serious correction, even if we do not see FBFH. In other words, at any short-term pop you tend to have less cash and more subpar names, simply because you layered on replacements to stay closer to the S&P.

I think the replacement army is out there in a lot of portfolios. Just stick with the quality, even if it means eating some crow. The really bad stuff that you might be cycling into will simply not hold up as well when we do see a pullback.

Yep, staying up with the averages now is almost impossible if you are a prudent manager. But don't compound it by replacing the good with imprudent choices of hitherto underperforming stocks. You can only imagine what happens to those when we do get the FBFH!

cramer

 


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 has no positions in stocks mentioned.

 

 

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54Comments
Mar 15, 2013 10:21AM
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It would be nice if you told the truth for once. There's a book: Fiat Money Inflation in France. It was written by a REAL scholar-- Andrew Dickson White and read before members of Congress in 1879. The book tells of the economic cycle leading to, during and after the French Revolution. It's only 100+ pages so even Ivy Leaguers can read it (as long as they take their ADD & ADHD medicine first). It's got a timeline in it. READ THROUGH THE TIMELINE. Wow... amazingly similar to our own, isn't it?!!! The sudden acceleration of these past two weeks is IDENTICAL to the hyper-printing period immediately prior to the crippling. Some dumb arrogant moves followed (who could guess) and then they wheeled out the gilloutine. You can't make 300,000 new millionaires a week comprised entirely of pariah while the workforce compresses further and further into poverty. Further (ITS IN THE BOOK) when working people can't stay up on bills incurred because they are working, they SNAP and tear down a jail brick by brick with bare hands. Retail is dead. Everything is dead... except fake-banking and the Federal Reserve. Notably, it's only moving if it's been reduced to a $1 or can be bought zero-down on ridiculous credit terms. Sorry, that's not economy.
Mar 15, 2013 10:46AM
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Other than 401k inflows and institutional investors, who is buying right now?  Seriously?  At this point, after this run-up, is there anyone out there who strongly believes there is more short and  mid-term upside than downside potential?
Mar 15, 2013 10:30AM
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  It appears the Germans with Merkel have blinked at the New World Order and the One World Economy.  This is much much more significant than Bernanke and Fed interaction I believe and should not go unnoticed.  Why we may even see Capitalism reappear and the Corporatist Fuedal blockade disintegrate.  The disintegration of this stupid pact should signal better times for workers throughout the world.  Fairness and maybe something closer to real capitalism will lift all boats. Bernanke will be left holding a bag of sand with a hole in the bottom.  Investors of course will then be on their own and off the baby formula. But oh the debt.  INFLATION!  Get out of this corporate stock market and buy hard assets like metals.  Even grain, cattle, and any consumer futures will do better. But when the flood gates of selling start Bernanke and all the kings money will be to no avail. I see this as a super long run positive.  For those who gained so much lately, shooting fish in a barrel, well it is time to CHANGE. 
Mar 15, 2013 10:28AM
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Anybody notice that the whitehouse.gov e-mail portal is constantly under-going maintenance? Just a word to the wise boss... the French couldn't get to their Royalty either. It's when the famous words were said to have been uttered... "let them eat cake". Shrinking portion sizes and boxes is STILL inflation and businesses intent on surviving are RECOMMENDING second jobs and moonlighting to personnel because executives make the cash and nobody else does. What does it take, Wall Street? Bernanke- where do you go now that you've screwed the whole world and damaged America forever? You don't get to explain your actions to mobs, they just rip off your limbs. 10 days of...? What? What are gains for in a freefall?
Mar 15, 2013 11:28AM
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Cramer 5 years ago: "Bear Stearns is safe .....Bear Stearns is safe.."   Goes from $62 - $2 to nothing !! In next few days.



Mar 15, 2013 11:20AM
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The Fed will not be a bond seller so long as the national debt level is at this level, that's the reason for the bond purchases and low rates, it's effect on the economy is the official reason only.  Since congress/president will not be making hard choices any time soon the bonds will remain in the feds hands for years to come.  The only near term problem (I believe at some point in the second half of this year)is that  they will stop with additional purchases.  They will however keep what they have on the books for years to come and possibly convert short term bonds to longer term ones which is a continuation of operation twist.
Mar 15, 2013 12:05PM
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This bond buying has now done what exactly for this economy and most Americans? Most of the market gains resulting from these purchase have done what now?  You have to spend and invest to promote an economy.  Those hoarding and dumping more and more into equities does what for the economy?  And the corporates are going to reinvest now?  Oh really.  Spash splash take out the trash.  Economic glasses don't show a benefit at all to this economy.  Just keeps those vested in the markets from screaming bloody murder and attacking wall street and the political machine which is the real intent all along.
Mar 15, 2013 2:09PM
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i've done my rants here in the past that since we did the moon race or space shuttle, we did nothing of substance. 

 

i swear we should build water desalinization plants, nuke plants, use solar pannels on top of every roof, mall parking lots, etc.  gain jobs like crazy and gain a truer payback from the investment. 

 

if what we "get" from QE3 was accomplished via the form of jobs and infrastructure, we're see serious gains.  although it would likely get all fowled up from the unions who want to be involved in it. 

Mar 15, 2013 12:10PM
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If there is any decency among Fed governors, we will see a rebellion against their criminal leader. Inflation is going to surge and it will wipe out the country´s savings. Impeach Bernanke !!!
Mar 15, 2013 11:31AM
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Cramer --- "Buy Gold at 1900 --- it can only gp one way from here .....up"

There are hundreds more examples if u look !!!

: )
Mar 15, 2013 10:23AM
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http://www.youtube.com/watch?v=t5qX7zjb09A  Don't sell Bear Sterns as it plummets in 2008.  Stick with your over valued stocks while bankers sell theirs in 2013. 
Mar 15, 2013 10:23AM
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Bernanke will try not to become a bond seller, ever. He indicated that already, by saying they might hold their bonds to maturity. However, if he continues buying, inflation will surge. Today´s CPI and Consumer´s Confidence are already reflecting this reality: ordinary people are feeling the squeeze of higher gas prices and money in the hands only of the wealthy and market crooks. The Congress needs to keep a tight limit to the government debt and budget, other wise Bernanke will have room to increase the Fed´s balance sheet up to a point of no return. A complete economic meltdown will follow.
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WHAT???

 

I thought Cramer was saying the stock market was going striaght up and don't fight it.

 

Confused

Mar 15, 2013 9:49AM
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""" the moment when central-bank chief Ben Bernanke goes from bond-buyer to bond-seller."""

 

~ the one valuable line from the article.  it WILL happen "soon", and just what will the result be? 

Mar 15, 2013 11:29AM
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Cramer 5 Years ago:  "Get out of this market now ......"   (this is after 5000 point loss already) ....DOW goes form 8000 ish to 14000 today !!


The only one who makes money of cramer advice is cramer ....
Mar 15, 2013 2:37PM
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Monthly inflation already at 0.7% for most people, except recluses on a diet (no fuel or food)
Mar 15, 2013 3:52PM
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"Stick with strong stocks, especially now"

The other week it was ditch safety for risk! Which is it oh wise one?
Mar 15, 2013 1:02PM
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"Those hoarding and dumping more and more into equities does what for the economy? And the corporates are going to reinvest now?"

 

Actually, they are trying to re-invent themselves at light speed. Like-- an Oil Change place that will start selling i-Pads or insurance products from a fertilizer platform. Grasping-- is a minor word for this shifting and it comes really really late. The key people ALL platforms need, were terminated, and shifted back in that day. The only hope I can see-- is expedition-like forays outside the button-presser realm to find the old skill sets and hiring them like shadow management (Sargeant Major status) to second-guess what degrees do. Be careful what you wish for, Corporate America... zero tolerance for texting, surfing, sports pools and fishing off the cubicle dock were no-no's that got you fired. You lack a work ethic and you know it. When you restore those who had them, expect to get cracking, not slacking on crack.

Mar 15, 2013 2:09PM
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OK, I feel like there's a correction coming soon also. It might be triggered by eurowoes, it could be the Federal Reserves Bolt From Hell, or it could be the Clowns Of Washington (COWS). But what if we're wrong. What if, instead of us being on the brink of the toilet bowl we're actually on the cusp of a huge economic revolution, something like the Industrial Revolution. Think about this: how much has the internet and global communications changed our society over the past 15 years? Think about new products we've seen in the past 3 years and the new services that are in high demand: Energy, Security, Infrastrure, Ecology, Education. Maybe we're just beginning to see a rapid rise in demand for all these things. Opportunity abounds, the world economy becomes closer knit together; people prosper. Is this a total day dream and if it's not will the COWS screw it up?
Mar 15, 2013 4:30PM
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CGT1....Thanks for all the help; Everything we bought today in the A.M. has went up by the close.

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