This is a companion post to Cramer’s top 5 picks for stocks to buy and is based on the tips from Jim Cramer’s Real Money: Sane Investing in an Insane World.
In the top 5 picks post, I highlighted the types of stock Cramer espouses to be essential to any individual investor’s managed portfolio. In other words, if you’re going to roll your own stock portfolio, you’d better have at least 1 stock from each category for minimal diversification.
He recommends 5 as the minimum, but says that most people should at least start out with closer to 10 for better diversification. Any more than that, and you’re running your own mutual fund. Here’s a list of the second group of 5 types from the bottom of the list of 10 to round out one’s portfolio.
6. Secular growth stock.
This is going to be a large company that has a stable product which sells wells regardless of economic conditions, but is currently in a down cycle. The thinking is that this type of stock is more likely to rebound. This category includes companies like Procter & Gamble (PG), Anheuser-Busch Companies (Budweiser) (BUD), Johnson and Johnson (JNJ), Coca-Cola (KO) and Pepsi (PEP). The important point here is to only buy when the stock has a low P/E.
7. high quality cyclical stock when economy turns south.
These are stocks that tend to do well when the economy is doing well. Stocks in this category include Dow Chemical (DOW), Deere & Co (John Deere DE) , EI DuPont de Nemours(Dupont DD), 3M (MMM). The trick is to buy these at the bottoms, which is usually when the economy is in its doldrums, and sell when the economy is booming.
8. Technology company.
If you chose a tech stock for your speculative stock (from the top 5 list), then pick a technology stock that pays a dividend. Otherwise, you could be doubling your risk with little extra reward.
9. A young retailer.
Cramer’s point: a retail stock can offer huge growth – provided you get in early. Once a retailer goes nationwide, the rapid growth is near an end. What you’re looking for is a retailer who has saturated a region of the nation, but not yet expanded nationally. He recommends Cabelas (CAB).
10. Hope for the future, with a non-tech stock.
Pick something from the S&P 600. The S&P 600 is the home of the midcaps. proving ground for S&P 500. Get on the growth train before the stock gets on the radar of the “smart money”.
Its amazing to me how many ways one can go about investing your money. I’ve found for me that best solution is both risky and low risk stocks. I often times put about half of my investments into low risk mutual funds that grow over time plus the other half in high risk high gain stocks. I recently got into day trading and I found that software stock picks are more reliable as they can automate a process that I cant do quickly enough. The blokes over at PrometheusFinancials.Com have a terrific system. You should check them out!
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