As Wall Street focuses on the budget debate in Washington, investors can make moves right now to protect their portfolios from any potential spending fallout, CNBC's Jim Cramer said on "Squawk on the Street" Thursday.
Some expectations surrounding a potential government shutdown "does take you breath away," Cramer said, because many believe that market momentum into year-end could be killed by a prolonged debate in Washington.
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Cramer noted that out of the 25 best-performing small-cap stocks this year, they are "almost entirely biotech."
The sector has a "double advantage" in this environment, he said, because the industry is not economically sensitive and there are numerous firms with promising drug pipelines.
Although some companies, such as Eli Lilly, have warned that key drugs have disappointed in clinical trials, many firms remain standouts with promising new drugs on the way.
Celldex Therapeutics, for example, is "just incredible," Cramer said. "You see these companies that are doing targeted work against cancer. They are the dominant companies in terms of who is responsible in this rally."
Other companies to watch are Celgene, Immunogen and Onyx Pharmaceuticals, which all have promising cancer products on the way, he said. "It is biotech. It's leading us. We don't talk enough about biotech ... if you think the economy is slowing, who has the greatest growth year over year? A company that discovers a new drug. A very exciting group."
Although the biotech sector may be sheltered from the federal debt debate, another group of stocks has disproportionate downside risk.
After car rental company Hertz cut full-year demand forecasts, Cramer pointed out that the travel sector in particular is vulnerable to budgetary problems in Washington. For instance, during the 2012 sequestration debate, many major airlines told investors to brace for weaker-than-expected numbers, and Cramer said that this could happen all over again.
The travel industry, "if you're worried, that's where your focus should be ... it's not essential that anyone travel in government, so they literally don't travel," he said.