Perfect Portfolio Protection for This Market

It’s ugly out there in the markets right now.

As if Europe wasn’t scaring investors enough, we found out this morning that weekly jobless claims jumped 25,000 to 471,000, a troubling difference from the drop to 440,000 economists had expected. That sent the Dow plummeting 376 points on Thursday, with the S&P 500 losing 3.9%. Money now is pouring out of stocks, especially those with little to no yield protection and high price-to-earnings multiples.

But not all stocks deserve the punishment, Cramer said during Mad Money. Take Clorox , which just yesterday announced a 10% dividend boost. Companies don’t commit to returning even more money to shareholders if they think things will get worse, not better. Yet CLX today closed in the red like much of the rest of market.

Cramer thinks that dip is your chance to start buying Clorox. This classic defensive stock – a company that sells consumer goods that everyone needs regardless of the economy’s ups and downs – reported strong earnings back on May 3 and effectively raised its guidance for 2010. Plus, Cramer said CLX, or at least a piece of its business, may be undervalued. We heard this week that three separate companies want to buy Pactive, which makes Hefty trash bags. Doesn’t that mean Clorox’s Glad is now worth a lot more than it was even two weeks ago?

And there’s the dividend, which with the new boost yields 3.5%. Cramer likes the stock at this $62 level and recommended buying right now. In a worst-case scenario, Clorox drops to $55, where it would yield 4%. It’s a win-win for shareholders: They either collect the payout in the meantime and buy more as the share price comes down, or they ride the stock back up as investors flood in for that yield.

CLX is cheaper than its peers, too. The stock trades at 13.7 times next year’s earnings versus 15.3 and 15 for Procter & Gamble and Colgate-Palmolive , respectively, even though Clorox boasts a high long-term growth rate.

All of this adds up to some great protection for your portfolio.

“With this dividend hike and the price private equity firms seem willing to pay for Hefty,” Cramer said, “then I have to believe that Clorox, the maker of Glad, is worth buying right here. And it will become even more attractive if the S&P 500 pulls all these stocks lower and that 3.5% yield then rises.”

Cramer’s charitable trust owns Procter & Gamble.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?