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CNBC’s Jim Cramer told investors to avoid several cohorts that don’t usually include stocks set up for long-term gains in any market condition, saying the stock picking process can be made easier by filtering out what’s not worth owning.
“The only real defense in the stock market is consistent growth,” Cramer said. “So when you’re building a portfolio for the long-haul, you want to steer clear of companies that can be derailed by inconsistency. And, honestly, that is most of the market.”
Cyclical companies aren’t ideal for lasting success, Cramer suggested, because they’re largely hostage to the broader economy, so their earnings can fluctuate dramatically. These outfits include full-priced retailers, suppliers of building materials and discretionary entertainment companies. These stocks are worth buying when the economy is weak and worth selling when it’s strong, Cramer said. But even the best of the cyclical stocks are “hostage” to macroeconomic forces, he continued, so “they’re not what we’re looking for long-term.”
Financials – like banks, insurance companies and lenders – can be very lucrative, but might “be overcome by sudden churns in interest rates or Fed policy,” Cramer said. These stocks are often the first ones to plummet during a downturn because they have exposure to credit risk, and they also get hit when inflation flares up and the Federal Reserve raises interest rates.
