For instance, when looking at the retail sector in the current economic climate, Cramer prefers such names as Dollar General and Dollar Tree because they have the most inexpensive momentum, as opposed to ETFs.
“I can lose less than those playing the earnings momentum game because I own the best and I’m short the rest,” he said.
Some ETFs, such as technology, include such a broad range of companies that focus on everything from manufacturing computer hard drives to social media, from cloud-based services to flat-screen monitors.
These days, just knowing the sector isn’t enough.
Cramer said smart investors know the subsector, as well as the growth rates within the group.
“Nothing’s worse than owning a bad stock, as defined by weak earnings, in a bad sector neighborhood. Nothing’s better than owning a good stock in a great neighborhood.”
WATCH: Jim Cramer Explains Sector Analysis
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