For the past month, Jim Cramer has been educating investors about a gigantic sea-change of stocks. He warned investors to take advantage quickly, as portfolio managers did not yet see it happening.
Guess what? Now they do.
The "Mad Money" host saw that the rally on Thursday was a signal that money managers have caught on to the rotation of investors out of domestic stocks such as the retailers, restaurants and railroads, and into international companies with headquarters in the U.S.
"I feared that when these money managers realized that they were out of position, just like a pro football defender who's covering the wrong guy, their moves would be vicious and punitive for the domestic stocks and heavenly for the internationals. That's exactly what is going on," Cramer said.
In Cramer's perspective this rotation is happening because countries abroad are getting stronger while the U.S. has stayed the same or gotten weaker. This is the case especially for Europe, as its central bank has taken interest rates so low that money had to flow into the stock market.
During the time when Europe was struggling, money managers ignored the data that showed the U.S. was slowing, largely because the news was overshadowed by a strong dollar.
As a result, expectations for domestic stocks were pretty high, and the projections for international stocks were reduced. Cramer always warns that the sign of a bottom is when expectations are so low that they must be beat.
Thus, portfolio managers are looking to buy international companies, and must do so now in order to buy them ahead of the hedge funds and mutual funds so they can beat the averages. Since most portfolio managers aren't sitting on a pile of cash, they have to sell their beloved domestic stocks to raise money to buy the international stock. Make sense?
Cramer saw that initially there wasn't a sense of urgency with this rotation, but now that has all changed with weaker numbers being reported this week.
"Is that an overreaction? Of course, but that's to be expected. Rotations almost always overshoot, and they take out even companies that are doing well, like Costco or Jack in the Box," Cramer said.
Here is Cramer's secret to profiting from this rotation: Take the pain. If you own some of the stocks that have been beaten down in the rotation, take the pain for the next few days.
The good news is that Cramer thinks it is still early in the game for international stocks, so there is still time to profit from the rotation. He sees the best opportunity in the technology, drug and consumer packaged goods industries.
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A few stocks he recommended for examination are IBM, Eaton, PPG and Dow Chemical, as these are all stocks that could roar on a weaker dollar. Additionally, the three most logical tech stocks are Apple, Google and Facebook. They have all stalled out recently on good quarters, and Cramer thinks the estimates are too low for them because of currency headwinds.
"Remember, rotations are vicious. We don't know when they'll end. We don't even know whether the dollar will stay weak or Europe will continue to be strong. Nevertheless, I believe in the sea change, and I think these moves will keep going."
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