CNBC's Jim Cramer on Thursday laid out two buckets of stocks that he recommends investors consider adding to their portfolios.
In making his case for the stock picks, the "Mad Money" host admonished index investing in this volatile market environment.
"Stop circling the wagons around index funds here," he said.
Investing in index funds, a passive investment strategy, is a low-cost financial instrument that gives market players exposure to a diverse range of companies. Cramer often warns that indexing over stock picking leaves investors exposed to the good performing stocks and the bad.
"If you want to invest right now, you have to own some stocks from the second bucket — the Covid winners — and whenever the market gets slammed, you can buy members of the first bucket, the big businesses with deep pockets," he said.
The first basket of equities that Cramer suggests picking among includes firms that are "big enough and deep pocketed enough" to weather the economic impact of the coronavirus crisis. The companies are investible through an economic downturn for their healthy balance sheets during an economic downturn.
"Big businesses with good balance sheets are investible because we know eventually they'll be just fine, "he said. "And they're especially investible when their stocks got hit on potentially fake news, like we saw with the Chinese data suggesting Gilead's antiviral drug, Remdesivir, doesn't work on Covid-19."
In the second bucket are companies that have been able to adapt, maintain business and benefit from the coronavirus pandemic and efforts to slow the spread of the deadly disease, Cramer said.
"These are companies that were made for this moment, the ones that thrive in this new stay-at-home economy," he said.
The group is nine times as large and ranges more industries:
As for a third bucket, Cramer noted industries that have been hit hardest by the global health crisis. Those businesses are at risk of needing a bailout, shutting down altogether or nearing bankruptcy. Those industries include banking, oil, most retailers, airlines and the travel and leisure cohort, Cramer said.
"The third bucket actually reflects the very real weakness in the economy," he said adding "it's like the 22 million jobs lost over the past five weeks."
"But the most important thing here is that the third bucket's a lot bigger than the first two when it comes to employees and when it comes to the fabric of our society, which is why it's so tough to own index funds here."
Disclosure: Cramer's charitable trust owns shares of Amazon and Costco.