When It Comes to Stocks, Boring Is the New Sexy

From: James Cramer
Sent: Friday, September 30, 2011 9:14 PM
To: Nicole Urken
Subject: yield screens

Remember, when we sell off like this the goal is to go through all of those yield charts. That’s what I need. S&P, UTES, REITS

It is no secret that stocks in defensive sectors—think tissues and toothpaste galore—and stocks with sizeable dividends have been the sweet spot of the equity markets, which have largely been poleaxed by macroeconomic uncertainty.

After all, in the third quarter, the S&P consumer staples were down a paltry 5 percent versus the 14 percent loss the broader index had to stomach. And the utilities , many which offer attractive yields, were actually up 1 percent in the quarter.

These numbers look pretty darn nice when you compare them to the materials , energy and industrials names, which were each down over 20 percent for the period of June 30th through Sep 30th.

But a key question remains: What now?

While there are many indications that the current climate is not a 2008 déjà vu, as Jim laid out at the top of the show Monday, that doesn’t mean that there won’t be more weakness in store ahead. And the name of the game right now remains: “yield, yield, yield.”

On "Mad Money," when we are looking for stock ideas based on a particular theme (say, dividends) we always start with an initial screen. In this case, we looked to see which names are offering attractive dividend yields. But because we don’t just churn data, it has been equally as important to go through the names to identify which ones offer the most compelling upside and dividend protection.

Monday, we highlighted FirstEnergy as a compelling buy with its 5 percent yield, but noted that not all yields are created equal—case in point: the danger of name-in-transitionVeolia .

This kind of initial data pull followed by some homework helps to narrow down names in what is a difficult environment. Now, a utility like First Energy or steady-eddy ConEdison don’t have the most scintillating business models. They certainly don’t get the party music going. But they are offering consistent earnings outlooks. Or how about Exelon which was upgraded today by Citi on account of EPA-related market tightening and its Constellation merger integration?

There is no question that there are compelling valuations out there, that there are names that have sold off more than their fundamentals and even the broader demand environment suggest they should. And because of that, it is important to keep your shopping list in your back pocket—your best-in-class companies in each industry. But we are currently in a market where these fundamentals don’t matter. This is an emotional market.

One investment idea exchange with Jim yesterday about a high quality retail name—Coach —acknowledges this environment where it is still too difficult to stray far from dividend names.

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Monday, October 03, 2011 7:59 AM
To: James Cramer
Subject: Coach

Think is a good one… Upside in China and good execution in US. Chinese slowdown isn’t reflection of an overstretched consumer in the country (still have rising middle class) but instead government maneuvering. Plus barbell dynamic in US (high end and low end strength) supports investment. Plus, Japan recovery (20% sales) will help.

From: James Cramer
Sent: Monday, October 03, 2011 8:02 AM
To: Nicole Urken
Subject: RE: Coach

Limited dividend protection- can’t look at this one right here.

The fundamental opportunity in Coach, which has sold off with the broader market and worries for the consumer discretionary group, is trumped by its lack of defensive positioning.

In other words, the fundamental analysis for Coach just doesn’t matter right here.

In summary: Keep your eyes focused on the prize: dividends. And if you want to venture outside of the slow-and-steady, try to choose dividend bearing names like Microchip in the semi space, which we highlighted Monday. Or look at some of the higher yielding industrials like Eaton.

Could this be any more dreadful? Possibly. While it’s not 2008, pick wisely for now with yield … and keep your cyclical shopping list in your back pocket.

"Inside the Madness" appears Tuesdays and Thursdays at madmoney.cnbc.com

Follow Nicole Urken on Twitter @nicoleurken

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