Investors should save all the drama for Broadway, not their portfolios, Jim Cramer said on CNBC's "Mad Money."
Especially on a day like Wednesday, when U.S. stocks took a sharp plunge across the board — with the Dow Jones closing down 161 points at 12,419, the Nasdaq ending 1.1 percent lower at 2,837 and the S&P 500 losing ground by 1.4 percent at 1,313 — investors should focus on the bright spots in the market.
“People are drawn to drama like moths to a flame in this market, just seeking it out,” Cramer said. “But that’s a huge mistake.”
In turn, the “Mad Money” host listed the three stocks he thinks investors should avoid.
First, there’s the tragedy of Research In Motion. After announcing a possible first-quarter operating loss, the stock plunged almost 10 percent and has now entered into a tailspin that most companies can’t pull out of, Cramer said. While users once had a “love affair” with the brand, tech titan Apple has taken charge with its eco-friendly products and left RIM in the dust. RIM has also suffered from under-investing in new technologies, lack of device compatibility and the repeated outages that have hurt the firm’s reputation.
And as for a potential takeover bid, Cramer said investors would do well not to speculate on this scenario. “The drama of Research In Motion will end badly for all involved,” he said. “No need to make yourself a participant.”
Then there’s the Facebook story, which Cramer called a “sort of very dark comedy.” While initially bullish buyers have managed to average down from $38 per share, others claim the long term may hold better things for Facebook. But Cramer doesn’t see this drama ending anytime soon. “Remember, we still don’t know what the bankers told the buyers and sellers of this one on the eve of the horrendous deal,” he said. “Why do we need to mess with Facebook, when social media has proven to be a graveyard that no one’s been able to whistle past — at least so far?”
And lastly, Morgan Stanley takes center stage. The behemoth bank has been under pressure, Cramer said, both because of its questionable Facebook IPO proceedings and because it is perceived to be among the most heavily exposed U.S. banks in terms of Europe.
He also noted there were huge accounts betting against the firm and others who argue that the stock is the most undervalued in the industry — citing the “tremendous disparity” between its book value and its share price. At the end of the day, the raging battle between the bulls and the bears makes the stock too tough to call, he said.
But Cramer offered some potential substitutes in place of these tumultuous tech plays. “Remember, we’re investors, not theater critics,” he said.
Instead of RIMM, he prefers Verizon, which he said boasts a 4.8 percent dividend yield, good growth potential and varied product selection. He recommended Apple over Facebook, because of Apple’s “fantastic” balance sheet, low P/E multiple and “dazzling” array of products in the pipeline. And he opted for Wells Fargo over Morgan Stanley, because Wells is a bank that “makes money from actual banking, not complex financial derivatives and trading.”
The bottom line: “Drama may be great on Broadway, but it’s terrible in your portfolio,” he said. So forget the “epic stock dramas” that have caused so many pain, and focus instead on the positive plays out there that will leave you looking for an encore.
Read on for Cramer’s Plays on a Potential Housing Rebound
When this story was published, Cramer’s charitable trust owned Apple.
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