Cramer’s Second Opinion on Stocks’ Health

If stocks were hospital patients, then last fall’s prognosis was grim – all were infected with a “Lehman Brothers-induced Black Death,” Cramer said Wednesday. No sector was expected to escape alive, and that’s why share prices across the board took such a big hit.

But now it’s time for a second opinion, as the Federal Reserve has done its part to buoy the economy, China’s stimulus is helping much of the world and this season’s earnings reports seem to signal a recovery. Apparently, only certain sectors deserved to be sold, and even those that did are starting to turn up now. As investors realize this, Cramer said, stocks could move higher. So it’s worth checking in with the top groups to see where they stand.

The industrials, transports, retailers, minerals and oils were “the severe-disease plays,” Cramer said. No one thought they would recover, and bankruptcy, it seemed, was a foregone conclusion. Not anymore, though. As the economy improves, so, too, will the US Steels , Nordstroms and Dow Chemicals of the world. These companies “are no longer in critical condition,” and Cramer predicted “a full recovery” as they rebuild their balance sheets.

The tech sector falls under the category of “false diagnoses.” These companies were never sick in the first place, thanks to trends like mobile Internet and a resurgence in tech spending. In fact, “they were bulking up the whole time,” Cramer said. Just look at this quarter’s numbers from Apple , Intel and SanDisk .

Natural-resource stocks were the “hard-to-diagnose patients.” We don’t know how cheap they are because there were first pushed up by hedge-fund speculation in commodities, and now Chinese demand is sending them higher. Cramer can’t recommend this group until he knows what they’re truly worth.

The last group of stocks are those “that were poisoned…by the US government,” Cramer said. But as President Obama and House Speaker Nancy Pelosi’s political positions become weaker, this group gets stronger. Companies like Merck and WellPoint , the big pharmas and health-care cost containers, see their share prices rise when the White House’s agenda is put on hold.

Considering the bleak outlook for all businesses just a year ago, “it’s no wonder their stocks go up repeatedly once we get the earnings reports that show they’re far healthier than the original diagnosis suggested.” Stocks are just too cheap given that performance, and Wall Street knows it.

“As one investors after another recognizes the plague’s run its course,” Cramer said, “we’ll continue to spiral higher over time just as we spiraled downward after Lehman’s plague went airborne.”

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