Whenever a quarter draws to a close, Jim Cramer likes to take a look at the winners and losers, searching for a stock that piques his interest.
Cramer typically starts with Dow stocks – both the winners and the dogs.
The best performer in the Dow during Q3 was Home Depot. “It’s a terrific play on the comeback in housing,” says the Mad Money host. However, he adds the thesis isn’t new and he already owns it.
Second best was Procter & Gamble. “The stock’s moved gigantically and now needs to rest or pull back,” said Cramer. However if and when it does pullback, Cramer is a buyer.
Finally, there’s Bank of America, which finished the quarter up almost 15%. “While I like it technically on a pullback, I still favor Wells Fargo as the best bank play on housing because of its remarkable 30% mortgage market share,” said Cramer.
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As for the dogs of the Dow, Intel was the number one loser, down 11% but Cramer said “I have no bull case for it, none.”
Behind that was Hewlett-Packard, however Cramer is equally unimpressed. “Nothing there. I just think it is the ultimate value trap."
Moving onto the S&P, Cramer said, “I'm chiefly looking at laggards because the winners are all up way too much.” And for 2012 they laggards were AMD , Big Lots and Monster.
“AMD I think is simply univestible. Can’t touch it,” Cramer said. “Big Lots is executing terribly and I can’t see what can change that. Monster’s intriguing down 25% but it’s still up 17% for the year and I remain concerned that Monster as well as Red Bull are going to be called into question by health authorities. Plus, it’s been losing share.”
At this point Cramer said his favorite thing to do is to see what index or group is so far behind the market that there might be opportunity. “I first look at the airlines ,” said Cramer but he’s cautious of the space because of the weak economy and high fuel costs. “So no to the airlines.”
Cramer then looked at trucking and freight. A few weeks back FedEx issued cautious guidance and, “if FedEx is doing terribly,” then beware.
And that led Cramer looks at the rails.
“I like these stocks,” he said.
However, rails can also fall victim to the commodities they transport so Cramer said it’s critical that investors always understand what’s largely in those freight cars.
And as a shipper of Powder River Basin coal, his favorite in the space is Union Pacific. “Unlike the other rails, Union Pacific ships Powder River Basin coal,” a cheap and desirable form of coal.
“Given the hot summer out west, the utilities have low inventories that need restocking,” Cramer explained.
Also, he said UNP “has tons of auto (exposure) which has done very well and a lot of oil, and it has moved aggressively into the Bakken and Eagle Ford patches, the two biggest finds since Prudhoe Bay, ones that lack much pipeline.”
And Cramer likes the price action.
“I also like the fact that the stock’s come down to be much cheaper than it has been historically,” he said.
One word of caution, “the chart indicates it could go lower before it settles.”
What’s the bottom line?
After sifting though the Dow and S&P, Carmer said, “I’ve winnowed it to one player, Union Pacific. If the stock’s open, meaning if we get a price break, it’s the player I’d go to.”
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