If the latest round of earnings reports taught us anything, it's that traders aren't always right when it comes to U.S.-China trade talks, CNBC's Jim Cramer said Monday as whispers of a potential trade summit kept stocks at bay.
Specifically, traders who bet against stocks like Nike and Starbucks when talks go south — usually assuming that they'll be boycotted because they're distinctly American brands — could have "the China trade" all wrong, he told investors.
"This earnings season has revealed some brutal truths about 'the China trade' that just don't jive with the ... conventional wisdom," Cramer said on "Mad Money." "We act like the winners and the losers from the trade war are obvious, but the reality's a lot more nuanced than that. Many companies that should be hurting in the People's Republic have been putting up some astonishing numbers, while others are being torn to pieces by increased competition or the slowing Chinese economy."
White House officials have confused Wall Street with their statements on the trade talks in recent months, at times signaling progress and at times suggesting that the two sides were still far from reaching an agreement.
As a result, short-term stock-pickers have had to follow their instincts, Cramer explained. When tensions seem to be rising, they'll usually choose to short-sell shares of top consumer brands, capital goods companies and technology giants, he said. Short-selling involves trying to profit on a bet that a company's shares will decline in the near future.
"Nike and Starbucks both reported an acceleration in sales" this quarter, he noted, adding that Nike saw its best-ever Singles Day, China's Black-Friday-esque shopping holiday. "Nike's biggest problem in the PRC? High-quality problem: making enough shoes to meet the demand."
Starbucks performed strongly, with higher-than-expected same-store sales in China. Estee Lauder's earnings report had nary a hair on it. And while Yum China didn't blow away the estimates with its results, they weren't nearly as bad as many had feared, with rising revenues to boot.
"The consumer stocks that are holding up in China ... all share one trait: they have unassailable brands with little Chinese competiton," Cramer said. "There's really nothing like Starbucks in the PRC yet. Yum China? KFC slowed, [but] not enough to give the short-sellers a win. Estee Lauder's practically peerless."
Aircraft manufacturer Boeing was the only exception, Cramer said, calling its much better-than-expected earnings results "a glorious secular win." Even though it sells one in four planes to Chinese buyers, "the Chinese need Boeing more than Boeing needs China," he explained.
In the technology space, "the elephant in the room is Apple," the "Mad Money" host said. The iPhone maker pre-announced some first-quarter weakness tied to China in early January, and while it managed to top expectations later in the month, it sent a whole host of stocks — including that of its supplier, Skyworks Solutions — down with it.
"Tech's the real triumph for the short-sellers, because the Chinese government has made it difficult for Apple to do well — [it's considered] cheaper, more patriotic, if you go buy the Huawei phone," Cramer said. "Nvidia's been crushed by a government-mandated slowdown in Chinese gaming."
So, if you're trying to invest around developments in U.S.-China trade talks, going against the daily grain might be your best move, Cramer said.
"If this market gets hammered on China fears later this week — and I expect it will — use that pullback to buy ... Nike, Starbucks, Estee Lauder, and Yum China, not to mention Boeing," he advised. "Be wary of the industrials with Chinese exposure, and expect pain in the techs with Chinese business. Sure, there are some wildcards, but now you have your cheat sheet and a much better sense of who's being hurt and who's doing just fine."
WATCH: Cramer's China trade cheat sheet
Disclosure: Cramer's charitable trust owns shares of Apple.
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