Why you should stop bottom fishing for stocks

Cramer: Stocks you shouldn't chase
Cramer: Stocks you shouldn't chase   

In order to be successful in this market, Jim Cramer recommends investors stop bottom fishing. Rather, avoid the catfish and stick with the top players; gone are the days where the ugly stocks need to be bought.

"I know the idea of chasing winners can be upsetting, but unfortunately, 2014's been all about angling from the 52-week high list, and it won't stop now with just 20 shopping days until the end of the year," the "Mad Money" host said.

One bottom fish that Cramer addressed on Tuesday was Vale, which has the highest-grade iron ore with the lowest cost of production. But that doesn't matter; the stock continues to tank.

"Right now the major iron ore companies seem to be in a suicide pact to overproduce and drive the price down themselves. No one, neither Vale, nor BHP nor Rio Tinto, has blinked."






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The consequences of this suicide pact have caused iron ore to keep hitting new lows every week. Though Vale is talking about selling its base metals division in an IPO, Cramer thinks that doesn't matter since they are producing it for China. Without robust growth in China, this stock won't go anywhere.

Another 2014 bottom fishing disaster was the offshore oil drillers. Everyone ran to this group because of high yields—think plump dividends or interest payments. But it turns out that a 9 percent yield won't do much for you when the stock declines 40 percent. Additionally, when a stock goes down, the company will tend to slash or remove dividends.

Just take one look at Seadrill, which is down 67 percent for the year. Or Transocean that yields 15 percent, but is down 60 percent for the year.

Earlier in the year, Cramer thought that General Motors was going to go full steam in 2014. Turns out, they were a bottom fish, too. And while U.S. auto sales may be good, the "Mad Money" host fears that it may not make a difference for GM because of its heavy exposure to Europe and China.

In the retail world, the winner for bottom fishing was J.C. Penney. Investors don't love stocks that are down 18 percent. Cramer instead recommended Costco, as it never seems to disappoint.

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Some other top fishes that Cramer recommended were in biotech, with stocks like Biomarin up 31 percent year-to-date or ISIS Pharma, up 33 percent. The airlines are also profiting from the low cost of jet fuel, making both Delta and American Airlines an attractive purchase. However, Cramer thinks Southwest Airlines is the real winner.

"Stocks, like sports, are unfair sometimes, and right now they're as unfair as I've ever seen. To which I say, 'So what?' To the victor goes the buyers, and that's just the way it is, at least through the end of the year."

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