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How Commodity Inflation Affects Stocks in 2011

If you own the stocks with lots of commodity exposure—meaning commodity consumers, not producers—then be forewarned, Cramer said. Your portfolio might see the kind of action that hit Procter & Gamble on Thursday.

P&G, which needs commodities like oil to make its products, beat the Street’s earnings expectations, but the stock fell almost $2 anyway. Why? Because commodity inflation cut into the company’s gross margins—they fell 190 basis points! “That’s awful,” as Cramer described them, and a possible indication of what’s to come for the rest of 2011.

This is why Cramer’s charitable trust sold its Procter holdings not too long ago, switching from the aforementioned commodity consumers to producers. Now, this doesn’t mean you should run out and sell all any stock with this kind of commodity exposure, but Cramer thought the dichotomy was definitely worth noting. And if your position in these consumer-products companies is significant, then you might have another P&G on your hands.

Let’s put it this way: While Cramer likes General Mills , McDonald’s and Procter, they can’t pass their higher costs along to consumers. So shareholders of these companies might want to balance out their portfolio with a fertilizer stock like Potash or an Alcoa, which helps produce the packaging.

“That way at least you’ll be able to benefit from higher commodity prices,” Cramer said, “even as companies like Procter are getting squeezed by them.”

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  • Jim Cramer

    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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