Cramer: How to Play Monday’s Pullback

Monday’s 290-point Dow drop was a gift, Cramer said, and investors can most likely expect more. Emerging from the threat of depression is often a “two steps forward, one step back” process, and today was proof of that. The smart thing to do then, as long as you believe the market will continue to trend higher, is to use these dips to buy great stocks at a discount.

Cramer, of course, had a list of names – if not specific companies, then sectors – for viewers that he thought worked right now. Such as almost anything related to China. He liked the Xinhua China 25 exchange-traded fund, a proxy for that country. But the Chinese market is up 50% this year, so investors might want to look elsewhere until there’s a pullback.

Think also about the natural resources that fuel China’s economy: oil, minerals, as well as the dry-bulk ships that deliver these goods. Cramer endorsed any big oil firm with a dividend yield of 4% or more, mineral companies and his favorite shipper Nordic American Tanker. Even an industrial might work here, thanks to China.

There are winners among the banks as well. Cramer’s top picks: JPMorgan Chase or Goldman Sachs. Neither company, he said, will end up with government shareholders.

Investors should also consider a large conglomerate. Cramer wouldn’t opine on General Electric because it is CNBC’s parent company, but he said a similar company, preferably with a high dividend yield, is worth owning. Consider Emerson as a starting point.

The housing sector is investable again, though Cramer preferred a home-related name to a pure-play builder. The homebuilders have already enjoyed a big run, and he expects further consolidation in the sector. Better to go with Home Depot or Lowe’s as a play on housing’s return. More risk-prone investors might buy some Sears Holdings .

Tech might offer the most exciting opportunities, though. Research in Motion, Apple, Qualcomm and Hewlett-Packard are all Cramer favorites, though he recommended waiting for a pullback in AAPL before picking up that stock.

Cramer pointed to Abbott Labs and Pepsi for those looking for a more defensive play on the market. He likes Abbott’s dividend yield, and the company reported a strong quarter, which for some reason Wall Street seemed to snub. PEP, too, announced great numbers today, with growth at the firm accelerating. Less risk-prone investors might want to switch out of the industrial and into one of these two names.

A pullback of 3% to 5% is Cramer’s buy-in sweet spot during any bull market, he told viewers Monday, and that could happen as soon as tomorrow. Now you know what to buy if the opportunity presents itself.

Cramer’s charitable trust owns Abbott Labs, Goldman Sachs, Hewlett-Packard, Home Depot, JPMorgan Chase, Pepsi and the Xinhua China 25.

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