Own secular stocks, approach cyclical names with skepticism

CNBC’s Jim Cramer on Wednesday advised investors to own secular growth stocks rather than cyclical stocks and to be vigilant in spotting the difference.

“The market is still eager for what is known as secular growth,” which doesn’t rely on economic cycles and likely wouldn’t be hurt by the Federal Reserve raising interest rates, the “Mad Money” host said.

“At this point in the business cycle, just about 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 be great additions to investors’ portfolios, Cramer said. He added that RH, formerly Restoration Hardware, is an example of a stock that is still sensitive to the business cycle.

RH on Tuesday reported an earnings beat and announced a three-for-one stock split to take place in the spring, but fell short of Wall Street expectations on revenue.

According to Cramer, investors can spot cyclical stocks by observing when “great demand causes a shortage of supply, which then leads to more production, which in turn leads to a supply glut, so the whole edifice collapses under its weight.”

“Don’t cry for the cyclicals, though. You can make fortunes in these things on the way up, provided you know when to jump off. But if you don’t jump off at the right time, the losses can be calamitous, “he said.

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Disclosure: Cramer’s Charitable Trust owns shares of Devon Energy and Apple.

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