The Top Three: Utilities, Regional Banks and Real Estate Investment Trusts:
In a market like this one, many people might feel like sitting on the sidelines, but Cramer points out three sectors that are ignored amid the general malaise: Utilities, Regional Banks and Real Estate. He chooses these sectors because they issue high dividends, providing protection when stocks dive. He is also looking out for buybacks and takeover prospects. Cramer warned viewers to stay away from stocks that are tied up with Europe, since general weakness is coming from there.
Although it may seem strange to buy banks with interest rates up, Cramer suggest patience, and believes that one more rate hike may be enough to satisfy the Fed. He believes regional banks have the advantage of cash flow and can be attractive takeover bids, citing the example of National City's (NCC) purchase of Harbor Florida Bancshares (HARB). He thinks that either SBCF or HCBK could be attractive takeover targets, although he believes the former has a slight edge. The dividends are around 2.2% and 2.3%. Cramer recommends caution when buying these stocks; "If you jump all over them, you could turn a touchdown into a seven-and-a-half-yard gain," Cramer said. "Right now I believe the bull market is in regional banks."
Cramer believes that utilities are good defensive stocks, since people usually do not cut back on energy, even when the economy is slow. He likes the protection that these stocks provide in the form of solid dividends, and sees greater consoliation potential now that Congress has repealed a law which prohibited utility monopolies. Cramer notes that CGC is merging with MDU, and that CHK, BKH, IDA and CNL are all good takeover targets, although he gives CHK a slight edge. Cramer warns against jumping into the sector with both feet, but buying a little bit at a time.
Since it is cheaper to buy than to build commercial real estate companies right now, Cramer likes Real Estate Investment Trusts or REITs, although not all are created equal; he prefers New York office REITs, such as EOP and VNO, since they pay good premiums and have solid dividends. Cramer also likes BDN and RA because of their high yields.
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