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Cramer: How to play the top Dow stocks ahead of China trade talks

Key Points
  • "There's still a lot to like here, but if I'm right ... that I think these trade talks [with China] could break down,"CNBC's Jim Cramer says.
  • "You'll want to keep some powder dry so you can buy into weakness and get some real bargains," the "Mad Money" host says.
  • He gives his thoughts on the runs in Microsoft, Cisco, Visa, American Express and more stocks.
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How to trade top Dow stocks ahead of China meeting

After an historic day on Wall Street, CNBC's Jim Cramer reviewed the top stocks that have helped extend the longest bull run in 2019.

The , an index of the 500 largest corporations trading on the New York Stock Exchange or Nasdaq Composite, rose to touch a new all-time high of 2,956.20 during the session before finishing the day up nearly 1% at 2,954.18.

The tech-heavy Nasdaq gained 0.80% and the Dow Jones Industrial Average closed up more than 249 points.

Cramer looked at the top 10 gainers in the 30-stock Dow index to assess where they are headed.

"There's still a lot to like here, but if I'm right ... that I think these trade talks [with China] could break down, " the "Mad Money" host said. "You'll want to keep some powder dry so you can buy into weakness and get some real bargains."

1. Microsoft

Microsoft has gained almost 35% this year, trouncing the year-to-date gains of the major averages. The computer giant trades at nearly 26-times 2020 earnings estimates, a "lofty" number in Cramer's eyes. Still, he said, Microsoft has a way of beating estimates.

"Microsoft wouldn't be my first choice of these top 10 to go higher here," he said. "I think it's a quality company, it's just I think that this stock may have gotten a little ahead of itself."

2. Cisco

Cramer said Cisco CEO Chuck Robbins has "radically" changed the technology conglomerate into an Internet of Things cybersecurity enterprise. The stock is up 32% this year.

"Best of all, even with everything it has going for it, do you know that this stock — it sells at 17-times earnings estimates. It's at a discount to the average stock in the S&P," he said. "I think it is a steal."

3. Visa

Shares of Visa are up nearly 30% this year. The stock isn't cheap, like Microsoft, trading for 28-times earnings, the host said.

Cramer said he prefers American Express, "even though it has some credit risk," or Mastercard here, which is a bit more expensive but has a faster growth rate.

"That said, Visa, an erratic trader prone to vicious dips, I think would absolutely be worth buying into one of those dips," he said. "Keep an eye on letter 'V' — it trades wildly and when it trades down believe there's going to be nothing wrong with Visa. It is that well run."

4. American Express

Money managers have flocked to American Express, up 31% this year, as a play on financial technology, Cramer said. Trading under 14-times 2020 earnings estimates, he said the stock is drawing even more interest as interest rates are expected to fall.

"Terrific franchise. I got it in my pocket, I don't know about you," Cramer said. "[With the] Fed about to cut rates, this is among the most desirable stocks in the Dow right now, and I've got to tell you convincingly" to buy it.

5. Walt Disney

After trading in the low $100 range for years, Disney watched its value surge after CEO Bob Iger in April laid out his five-year vision for the iconic film company's Disney+ streaming service. Shares are up nearly 30% this year.

"At this point, though, you're late to the party, and I think it's a mistake to chase," Cramer said. "This stock can come down to the [mid] $130s level from the low $140s ... because of a big sell-off off of China [trade] — that's when you pull the trigger."

6. Travelers

Travelers Companies' stock has sailed 27% this year. Cramer said the insurance corporation is seen as a play on lower interest rates.

"I like the company for its sure-footedness, not to mention its cheap valuation. This one sells for less than 13-times earnings," he said. "I'm not enamored of the financials, but Travelers is a good company and it sure wouldn't hurt to buy that stock right here, right now."

7. Apple

Apple, facing pressures from both sides of the U.S.-China trade war, has rallied 26% year to date. The company is in the hot seat, Cramer said. Deutsche Bank on Thursday gave the company a "hold" rating because of tariff exposure.

The iPhone maker has been emblematic of global trade, employing thousands and selling a ton of products in both countries. Now there are potentially two retaliation targets on its back, Cramer said. President Donald Trump is threatening to slap more tariffs on all remaining imports from China. China could boycott Apple in retaliation for a U.S. blacklist on Huawei, the country's leading telecommunications company, which could result in a $30 billion revenue shortfall on business.

Cramer still recommends investors own, don't trade, Apple, citing its growing subscription services segment.

"Plus, we're seeing real strength in the wearables business, especially in the Watch, which has all sorts of health applications," he said. "Best of all, Apple trades at less than 16-times next year's earnings, so it's not like you're paying through the nose after its monster run. It's being valued as if they are going to miss the numbers."

8. Home Depot

Home Depot's stock has run up 21% this year. Cramer said it's a part of the winning retail cohort, alongside Walmart, Costco and Target, because of its scale. Shares trade at 19-times 2020 earnings, which the host said is reasonable for what he says is one of the best big box retailers in the world.

"That said, the weather's been pretty bad for gardening season," Cramer said. "So maybe you'll have to wait for a pullback before you pull the trigger, 'cause it's been one of the leaders in the Dow of late."

9. IBM

IBM's shares fell hard during the fourth quarter sell-off in 2018. The stock has rebounded, up 22% this year. The computer maker is nearing a transformation when it closes on its deal for Red Hat, a Cramer-favorite cloud name, in the second half of 2019.

"In the meantime, IBM's paying you to wait [with its] 4.7% yield. I would be a buyer of IBM," he said.

10. Procter & Gamble

Procter & Gamble has had a "stunning" 20% run this year, posting good earnings with potentially more to come, Cramer said.

"On the one hand, I worry that we're late to the party," he said. "You know they even got a 2.7% yield. ... CEO David Taylor is doing a superb job."

WATCH: Cramer reviews the top Dow performers

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Cramer: How to play the top Dow stocks ahead of China trade talks

Disclosure: Cramer's charitable trust owns shares of Apple, Microsoft, Home Depot, Cisco, Mastercard and Walt Disney.

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