Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program,Friday April 18. Click on a stock ticker for more analysis.
Too many investors sit out rallies said Cramer, and he reminded viewers that paper gains are not worth anything; "The goal is to buy low and sell high, so when the market's up big, it's time to lock in some profits."
Making the Grade
A rally is a time to scrutinize one's portfolio and to see which names have earned the right to stay there and which should be sold; "Assume everything is guilty until proven innocent," he advised. When the stock prices rise, the risk-reward equation gets worse, so that is the reason stocks need to be evaluated during a rally. Cramer would rate stocks on a scale of one to four: stocks are given a one if they would be owned at the current price, two is for stocks that would be worth owning at a lower price, three are for names that should be sold on a gain an four are definite sells. As stocks get more pricey with a rally, ones become twos, twos become threes and so forth.
Cash is King
Cramer urged investors not to get carried away by the bullish sentiment of a rally and avoid buying even stocks that seem to be bargains. Since there is an inevitable decline after every rally, he would wait for the drop before buying. A rally is a good time to raise cash, which is necessary for every portfolio.
Cramer identified two kinds of stocks to sell during rallies. First, he would get rid of stocks that looked good at a lower price but have had a big gain. Profits must be taken in successful momentum stocks, even though it seems certain they will rise further, and he reminded viewers that no holding should comprise over 20% of a portfolio. Second, stocks that don't rise even on good news or a rally are sure losers, and he would get rid of them.
A portfolio that is gaining a huge amount is most probably too risky, and Cramer would use rallies as a way of gauging if one's portfolio is too speculative. If a portfolio has too many risky stocks, Cramer would use a rally as a way of culling more speculative names.
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