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Cramer: How to play FANG, Apple amid the sell-off

The New Year kicked off with an ugly sell-off on Monday, and many investors asked Jim Cramer what to do with FANG — which stands for Facebook, Amazon, Netflix and Alphabet — and the once-popular favorite Apple.

What should they do if they already own these stocks, or want to own them?

Cramer said that FANG should be avoided right now. These stocks are up so much that he now expects profit taking. Actually, it would be insane if that didn't happen at this point.

"I know about the process of money management. Money managers are under tremendous pressure to outperform the S&P 500. They also want to show that they are 'with it' and have a 'brain,'" the "Mad Money" host said.





"Don't bet against the percentages. They can be wrong, but not as often as they can be right" -Jim Cramer

The best way to demonstrate that a money manager is "with it" is to buy the stocks that make up FANG going into the year end, since they were up huge for 2015.

Once the money manager owns these stocks, they will try to keep the stocks higher in the last few weeks of the year, typically through concentrated buying.

Cramer regarded both of these techniques as artificial buying — and it will disappear the moment the New Year begins.

This could explain why all members of FANG were hit heavily in Monday's trading session.

Read more from Mad Money with Jim Cramer

Cramer: The market is totally irrational!
Cramer: Horrifying stocks to avoid in a sell-off
Cramer: Stocks that get stronger in a decline

From a valuation perspective, Cramer found that both Amazon and Netflix are plays that do not trade based on standard measurements of valuation. These stocks trade off of growth in retail sales and sign up, and cannot be simply measured. That means they have no inherent valuation that makes them buyable right now.

"Sure, you can go buy them if you can't help yourself. But if you want to minimize the risk of paying too much, why not wait until the full magnitude of that artificial buying wears off?" Cramer said.

Alphabet trades at a far more reasonable valuation compared to the rest of the group. However the stock traded up to almost $800 from $530 in 2015, so Cramer wants investors to wait for pullback and then buy this stock first in the group.

As for Apple, the world has decided that without growth in cellphones the stock is finished. But there is another market that is big enough to matter down the road — autos.

Cramer recommended for Apple to spend $9 billion to buy the brains behind the connected car, Harman. At its current valuation, Cramer only wants those investors that do not own Apple to buy it. But if you already own it, he wants you to wait.

"You now have your rationale. Don't bet against the percentages. They can be wrong, but not as often as they can be right," Cramer said.

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