Investors should follow certain rules when building their portfolios to weather the market volatility that Monday’s rally suggests, Jim Cramer said.
“When you see new, unseasoned commodities exploding higher, along with names like Tesla popping up… a stock split, it tells you that maybe there’s a little too much excitement, a little too much froth for the market as a whole. One or two of those runs would be fine, but when you see all the speculative assets raging in an overbought market,” the Mad Money host said.
Tesla intends to split its shares to pay shareholders a stock dividend, according to a filing Monday. The news caused Tesla shares to jump 8%, leading a tech rally for the day that included names like Microsoft and Amazon.
The Dow Jones Industrial Average gained 0.27%, while the S&P 500 gained 0.7%. The Nasdaq Composite rose 1.3%.
The Cboe volatility index, Wall Street’s measure of fear, closed below 20 for the first time since mid-January.
On the heels of market gains, Cramer’s noted rules should keep investors in mind to successfully weather potential market turbulence across the board. Here are his suggestions:
- The most important rule is to own an oil stock, as fuel prices rise. “My favorites are Chevron for a steady dividend. It has also retired, and Devon [Energy] also withdrawn, which paved the way for a new way of rewarding shareholders,” Cramer said.
- Pick several stocks with low price-to-earnings ratios. Cramer said Google parent Alphabet and Facebook parent Meta, both at “historically cheap valuations,” are good options that can withstand rising inflation.
- Consider a healthcare stock that can do well even when the federal reserve‘s rate hikes are slowing the economy. “My favorite remains Eli Lilly,” said Cramer.
- Own stock from a stable retailer that can stay ahead of inflation. Cramer recommended Costco and said to avoid Dave & Buster’s.
- Own a speculative stock or two, but be careful. “I think it’s a great way to stay interested in the stock market. …But if you’re going to speculate, you need to be prepared for the possibility that these stocks could go to zero. Never buy anything like AMC or GameStop with money. They can’t afford to lose,” Cramer said.
Disclosure: Cramer’s Charitable Trust owns shares of Amazon, Microsoft, Alphabet, Meta, Chevron, Devon, Eli Lilly and Costco.