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CNBC’s Jim Cramer said that investors should “stop circling the wagons around index funds”. It’s time for us to pay attention to new Covid winners.
CNBC’s expert TV personality Jim Cramer shared his opinion on which stocks investors should add to their portfolios amid the Covid crisis.
In making his case for the stock picks, the “Mad Money” Cramer advised on some index investing in this volatile market environment.
“Stop circling the wagons around index funds here.”
When it comes to index funds, it is important to know that these are a way for investors of modest means to get into the stock market, but the better you become at investing, the less desirable they are. In short, an index fund is simply a mutual fund where, instead of a portfolio manager making selections.
Cramer often says that indexing over stock picking leaves investors are exposed both to the good performing stocks and the bad.
“If you want to invest right now, you have to own some stocks from the second bucket — the Covid winners — and whenever the market gets slammed, you can buy members of the first bucket, the big businesses with deep pockets.”
First Basket Includes Companies “Big Enough”
The first basket of equities that Cramer suggested picking includes companies that are “big enough and deep-pocketed enough” to get through the economic effect that the coronavirus crisis had on national economies and GDP’s of almost all states in the world. It might be ok to invest in those firms during an economic downturn in order to create healthy balance sheets for them because most of the companies, let us not forget, went through heavy losses.
Cramer suggested IBM (NYSE: IBM) and Union Pacific Corporation (NYSE: UNP) in this bucket.
He also explained:
“Big businesses with good balance sheets are investible because we know eventually they’ll be just fine. And they’re especially investible when their stocks got hit on potentially fake news, like we saw with the Chinese data suggesting Gilead’s antiviral drug, Remdesivir, doesn’t work on Covid-19.”
Just for a reminder, according to documents accidentally released by the World Health Organization, the antiviral drug failed to improve the conditions of 158 patients carrying the virus in a Chinese trial despite a separate trial in Chicago which showed promising results. Also, remdesivir, developed by Gilead Sciences (NASDAQ: GILD) as an unsuccessful treatment for the Ebola virus, showed some very serious side effects in some patients.
“Importantly, because this study was terminated early due to low enrolment, it was underpowered to enable statistically meaningful conclusions. As such, the study results are inconclusive, though trends in the data suggest a potential benefit for remdesivir, particularly among patients treated early in disease.”
Second Bucket: Firms that adapted to COVID-19
In the second bucket, Cramer suggested firms that have been able to adapt, maintain business and benefit from the Covid pandemic somehow.
“These are companies that were made for this moment, the ones that thrive in this new stay-at-home economy.”
The group ranges more industries:
• Retail plays: Amazon.com Inc (NASDAQ: AMZN), Walmart Inc (NYSE: WMT), Costco Wholesale Corporation (NASDAQ: COST) and Target Corporation (NYSE: TGT)
• Consumer goods plays: Kimberly-Clark Corporation (NYSE: KMB) and Procter & Gamble Company (NYSE: PG)
• Pantry plays: Hormel Foods Corp (NYSE: HRL), The J. M. Smucker Company (NYSE: SJM), General Mills Inc (NYSE: GIS), Mondelez International (NASDAQ: MDLZ) and McCormick & Company (NYSE: MKC)
• Stay-at-home plays: Zoom Video Communications (NASDAQ: ZM), RingCentral (NYSE: RNG), ZScaler (NASDAQ: ZS), Okta (NASDAQ: OKTA), Crowdstrike Holdings Inc (NASDAQ: CRWD), Domino’s Pizza (NYSE: DPZ) and Netflix Inc (NASDAQ: NFLX)
Third Bucket by Cramer: Sectors Hit Hardest with the Covid Crisis
In the third bucket, Cramer suggested some sectors that have been hit hardest by the coronavirus pandemic. These are all the companies that are at risk of needing a bailout, shutting down or nearing bankruptcy. Those sectors include banking, oil, most retailers, airlines and travel and leisure.
“The third bucket actually reflects the very real weakness in the economy. It’s like the 22 million jobs lost over the past five weeks. But the most important thing here is that the third bucket’s a lot bigger than the first two when it comes to employees and when it comes to the fabric of our society, which is why it’s so tough to own index funds here,” explained Cramer.