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A stumbling world economy and massive hedge-fund selling have combined to form a perfect market storm, driving down both deserving and undeserving stocks.
But there are opportunities to be found in just such an environment, Cramer said. Some of those stocks hammered down despite their strong underlying businesses could be worthwhile buys right now. Plus, and this is something Cramer’s been focusing on a lot recently, the stocks are so low that they’re paying out a much bigger dividend yield than they once had.
Consider Kimberly-Clark [KMB
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], the health and hygiene product maker. The stock, while up big Thursday, took a hit for a long time because of higher commodity costs and the hedge funds’ relentless selling of most things S&P 500. But now the yield is 3.9%, historically higher than usual.
But commodity costs have come down for the same reason as KMB. The world economy is slowing and hedge funds were all-in on commodities and all things related. So Kimberly-Clark’s business is in better shape now. When you factor in the lower costs, the higher yield and the fact that KMB makes products that are bought no matter how bad the economy, you have a good case for buying this stock.
But you don’t want to buy after such an up day for KMB. Cramer’s expecting the hedge funds to get involved again and drive the stock down, so wait for that to happen. In fact, Cramer thinks you should take on a quarter of a position on the next pullback to $58. The yield will be 4% then. Next, wait for the stock to sink to $51.50, where the yield will be 4.5%, before buying another quarter position. The next buy-in price would be $46 – if KMB goes that low, Cramer said – where the pay out would be 5%, and so on.
Cramer emphasized such a wide scale down because there’s still so much room for the hedge funds to cause damage. Granted, he doesn’t want to see investors ever buy in at just one level. But beyond that, these funds are so overleveraged that they can swing the market in either direction at any given time. That’s why we’re up 10% one day and down 8% the next.
Kimberly-Clark isn’t the only stock that fits this description. Merck [MRK
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], DuPont [DD
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] and Duke Energy [DUK
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] are also worth a look, Cramer said. He suggested you look for companies with less economic sensitivity and those that can afford to pay the dividend. A company similar to Kimberly-Clark, one with commodity exposure, works, too, because their costs will be much lower than before.
Trust in dividend yields, Cramer said, at least until the world economy improves and these flailing hedge funds settle down (or go out of business).
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