5 things that Cramer says should be in your portfolio, now
As you put together your portfolio, Jim Cramer says include these 5 things; they should increase your chances of success.
Here's the breakdown:
Cramer is a big fan of growth – and he's hardly alone. Therefore these stocks can trade at rather high multiples or premiums.
"As a general rule of thumb, when it comes to a high-octane secular grower, the stock can trade up to a multiple that's as high as twice the long-term growth rate before it gets too expensive for the vast majority of growth oriented money managers. So if the company's growing its earnings per share at a 20% clip, its stock could potentially fly as high as 40 times earnings," said Cramer.
With growth stocks, there are many metrics to consider, however Cramer said little is more important that the rate of growth.
As long as that rate increases the market should reward the stock with a big premium. However, when the growth rates slows, the market will also punish the stock.
Therefore, "You have to be very careful when you're playing with a fast-grower, especially after it's been rising for a while," said Cramer, "because as soon the company misses a step that stock will start getting pounded. And the pain can last for years as it goes through what is known as multiple shrinkage."
Although some dividend paying stocks fell out of favor recently, Cramer remains a fan long-term.
Typically they attract buyers when the market gets rough as a relative safe haven and they're often blue chips, or well-established companies, and can therefore weather a storm.
However, Cramer likes high yielding stocks for a third reason; reinvesting those dividends back into the respective stock is one of the most time honored ways to make money.
"If you go back to January of 1926, about 40% of the return from the S&P 500 has come from reinvested dividends-that's how essential they are to capital appreciation," said Cramer.
"You need to own a stock with a big, high-yielding dividend. In the past, Cramer has cited Dow Jones Industrials stocks such as Verizon, Disney and 3M as stocks with yield that he often has on his radar.
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Because the prosperity of one nation is closely linked to another, Cramer thinks a piece of your portfolio needs to reflect the so-called global economy.
"And that's not a U.S. company that does a lot of business overseas, it's a genuine international company that's based in another country," he said.
Not only does Cramer like participating in trends happening elsewhere in the world, but he also says that a foreign company provides some sanctuary from the partisan politics of US Congress.
"And you don't have to bet on anything exotic like a Chinese company," said Cramer, "just look outside the US. A Canada-based company is just fine. Or hold an ETF such as the EWJ which tracks Japan or the EWZ that tracks Brazil to spread out the risk."
You won't hear this from many other Wall Street pundits, but Jim Cramer advocates holding a stock that poses higher risk but also presents higher reward.
"Making big profits is compelling," said Cramer. "I know why you're in the market."
And there's an undeniable mystique to owning a spec stock. They allow you to stay engaged and keep your head in the game. "You always hear that speculation is the height of irresponsibility, but I say a portfolio without a long shot is boring," said Cramer. Read More: Cramer's favorite spec plays: buy, sell or hold?
Despite the recent downtrend in gold, Cramer is still a buyer of the precious metal - but as a long term hedge. That's because catalysts that typically send the stock market tumbling send gold higher. "Think of it as insurance against economic and geopolitical chaos as well as inflation," said Cramer.
Also Cramer likes gold, because he believes it's becoming a kind of de facto currency. "With governments debasing their currencies left and right to be competitive investors need to go somewhere, and they've been turning to gold," he said.
Often times Cramer suggests the GLD an ETF that tracks the spot price of gold, as a preferred way to play the precious metal.
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