The idea hit him when the market spiked midday, seemingly for no good reason given the disappointing jobless claims this morning and weak numbers out of Europe. Stocks opened lower, as they should have, but later rebounded into the black only to close in the red, with the Dow off 77 points and the S&P 500 losing 0.8%. That rally shouldn’t have happened, much as the threes never should have rallied. So it would be careless, Cramer thought, to not lock in those profits while you have them.
Now to explain what threes actually are. For a long time, as far back as his hedge fund days, Cramer has always rated his stocks as ones, twos, threes and fours. Ones are stocks he wants to buy immediately, twos are those he’d buy on a pullback, fours are stocks that needs to be sold no matter what, and threes, they are stocks he’d sell into a rally.
What investors should do then, Cramer said, is review their portfolios right away to search for these threes. They should be easy to recognize. They’re the companies with less-than-stellar fundamentals whose stocks have performed well regardless. Think accidental high-yielders like Johnson & Johnson , which used to offer an attractive 4% yield that has since slipped to 3.5%. As far as Cramer’s concerned, the underlying business isn’t strong enough to justify owning the stock anymore.
Other potential sell candidates include Wells Fargo , Exxon Mobil and Kellogg , given their, in Cramer’s opinion, dim prospects. Better to own an Abbott Labs , JPMorgan Chase , ConocoPhillips or General Mills .
But don’t be so quick to put that newly raised cash to work. While you want to dump the threes as soon as possible, there’s no rush to buy Cramer’s alternatives. Be patient. Wait for the right price. Then break out that money you collected and start building some new positions. In addition to the other names mentioned here, you might consider Apple on a pullback, too.
When this story published, Cramer’s charitable trust owned Abbott Labs, Apple, ConocoPhillips, General Mills and JPMorgan Chase.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com