CNBC’s Jim Cramer on Wednesday advised investors to own long-term growth stocks rather than cyclical stocks and to be vigilant when it comes to spotting the difference.
“The market is still eager for what’s known as secular growth,” which isn’t dependent on business cycles and likely wouldn’t be hurt by a Federal Reserve rate hike, the Mad Money host said.
“At this point in the business cycle, almost every company wants to be seen as a secular growth story. Approach them with skepticism,” he added.
Devon Energy, Deere, Tesla and Apple are examples of secular stocks that could make great additions to investors’ portfolios, Cramer said. He added that RH, formerly Restoration Hardware, is an example of a stock that’s still sensitive to the business cycle.
RH on Tuesday reported a drop in earnings and announced a 3-for-1 stock split to take place in the spring, but fell short of Wall Street revenue expectations.
According to Cramer, investors can identify cyclical stocks by observing when “high demand causes a lack of supply, which then leads to more production, which in turn leads to a supply glut that causes the whole building to collapse under its weight.”
“Don’t cry for the cyclicals, though. You can make a fortune on these things on the way up, provided you know when to hop off. But if you don’t jump out at the right time, the losses can be catastrophic,” he said.
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Disclaimer
Disclosure: Cramer’s Charitable Trust owns shares of Devon Energy and Apple.
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