All week Cramer’s been going under the hood and inside the car to figure out the best ways to play a resurgent auto market in the US. Now that this country is back to selling cars and building new ones to replace the industry’s depleted inventories, companies like Johnson Controls and Magna International are thriving. Even Lear is doing well, and it was going through bankruptcy proceedings just three months ago.
Cramer can’t say the same about China’s auto suppliers, though, which is why he’s putting them in the Sell Block. China Automotive Systems , Wonder Auto Technology and China Yuchai International have seen a sizable run, the three averaging a 402% gain since the end of 2008, but they are not as good as their American peers. That’s why he recommended switching out of these Chinese names and into his American picks from this week.
Some analysts consider China an “auto and auto parts utopia,” Cramer said, but that is “dead wrong.” Not after such a big move by these stocks. The Chinese market, which jumped 80% last year, produces a lot of bubbles, auto parts included, so he doubted that CAAS, WATG and CYD would continue to deliver. And that’s what investors have to ask themselves, whether or not the group could still push higher.
Part of the strength in the Chinese auto industry had to do with a very well-structured stimulus package that included sales tax cuts on cars with smaller engines and major incentives to replace old cars with new ones. But stimulus is just that, Cramer said, “It’s artificial demand. I think it’s going to go away.” The government has partially reversed the sales cut on small cars and should eventually reverse the rest of it, which could further hurt these companies.
The US autos companies, however, suffered a huge slowdown during the recession of the past couple of years, and that leaves plenty of room for the stocks to run. As Johnson Controls, Magna and others generate more revenues and profits, their share prices should rise. In China, the growth is already priced in. Plus, now that North American companies are in much better financial shape, courtesy of some brutal restructurings, they can amass the firepower needed to enter the Chinese market in a much bigger way.
So what’s the bottom line? Sell China and buy America when it comes to auto parts.
Chinese companies “just don’t have the same kind of upside as their American counterparts,” Cramer said.
Cramer's charitable trust owns Johnson Controls.
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