After a calamitous day of stock trading Thursday, CNBC's Jim Cramer broke down where investors can find buying opportunities in the market.
"In a tough market, you need to circle the wagons around the few good names you feel comfortable buying and then buying more if they go lower, because they might in case the neophytes are in there," the "Mad Money" host said. "And those recovery plays, sadly, they're not recovering."
Cramer advised that investors be careful when putting more money to work here, foreseeing further moves lower.
"That's why you need to tread carefully when you buy tomorrow, because when these novices start capitulating we could get another leg down. However, you should start putting money to work tomorrow," he said.
The host suggested that investors buy into companies that can meet earnings expectations, despite the ongoing downturn in the economy. He recommended circling back to stocks listed on the Cramer Covid-19 Index, particularly those that are offering attractive dividend yields and are well off their highs, like PepsiCo.
"You go with companies that will be able to hit their numbers regardless of how badly this economy gets hit by all these new Covid hot spots."
Separating the wheat from the chaff, the former hedge-fund manager delivered a scathing critique of investors who spent weeks piling money into the airline, cruise line, retail and other companies most damaged by the demand sap caused by the coronavirus pandemic.
"When it gets that easy, when everyone thinks they're smarter than ... Warren Buffett," Cramer said, "then you know you're in for a real bruising, a genuine rollback that wipes out anyone who was buying on margin and sets back the neophytes who only knew that when you buy a stock it goes up."
After posting strong gains in prior weeks on reopening hopes, the major averages suffered their worst declines since the height of the coronavirus sell-off in March. The Dow shed more than 1,860 points, almost 7%, to close at 25,128.17. The S&P 500 and the Nasdaq Composite, which closed above 10,000 for the first time ever the day prior, both plunged more than 5%, to 3,002.10 and 9,492.73, respectively.
Cramer called back to a move by Buffett, the billionaire head of holding conglomerate Berkshire Hathaway, in May to offload his company's $4 billion stake in United, American, Southwest and Delta Air Lines.
"The visceral nature of the losses — this is the kind of decline we haven't seen since the dark days of late March — has already wiped out a good chunk of the geniuses who crowded into the airlines, betting that they knew better than Buffett after he dumped the whole group," Cramer said.
Disclosure: Cramer's charitable trust owns shares of PepsiCo, Facebook, Nvidia, Apple and Broadcom.