Mad Money

Fishing for Financials

The next sector Cramer wants you in might confuse you – the financials. Yes, we know, this group is responsible for the subprime-lending problem we’re seeing today, but this could end up helping investors.

As the credit environment tightens, more and more working class people will be unable to secure the loans they need. Cramer says this will give the Federal Reserve a great excuse to cut interest rates. Their thinking is, “No one who needs a loan can get one. That must mean rates are too high.” When those rate cuts happen, there should be rallies in all the companies that benefit from short-term interest rates going down and long-term rates going up: the banks and brokers.

There are a lot of ways to play it. Goldman Sachs , which Jim’s charitable trust owns, does well in this environment. So, too, does Capital One . If you’re looking for a traditional bank, Citigroup or Bank of America will do. Cramer also likes T. Rowe Price .

As for the last third, that’s made up of minerals, chemicals, papers and aluminum. Cramer thinks these stocks are still susceptible to takeovers, but you can’t own them when the cereals and biotechs, the defensive stocks, are in ascendance. There’s too much downside to the cyclicals.

Bottom Line: The market bottoms in thirds – the first bottom is in defensive supermarket stocks like Heinz and Altria , and in equally defensive medical plays – Cramer prefers biotech to big pharma.

Questions? Comments?