Companies with the worst numbers suddenly have the best stocks, Jim Cramer says

Strong stocks are in free fall and beaten-down names are on the rise as market players adjust their portfolios to take advantage of a potentially sharp economic recovery, CNBC’s Jim Cramer said Wednesday.

“That’s thanks to J&J (Johnson & Johnson), Moderna and Pfizer,” the “Mad Money” host said. “We’re on the cusp of a post-Covid boom that now looks to be pushed forward happening much sooner than expected.”

Cramer added that money managers “now want the obvious reopening plays, the ones that are in terrible shape, but could be huge winners as the world goes back to normal.”

With the U.S. economy expected to break free from the severe decline it suffered last year, stocks of companies in cyclical industries are having their day largely at the expense of the high-flying growth and tech stocks that rallied through the pandemic. Cramer said investors are pouring money into airlines, cruise lines, hotels and non-essential retailers and diverting funds from the pandemic winners.

The divide between tech and cyclical names, or companies that perform better in times of economic expansion, was illustrated in Wednesday’s market.

Shares of Norwegian Cruise Line and American Airlines gained 6.3% and 3.4%, respectively, while Wynn Resorts advanced 1.7% in the session. Peloton and Zoom Video Communications — two of the biggest lockdown winners — lost more than 8% each. Amazon also lost 1.9%, and Walmart slid 2.9%.

“Anything that was liked last year is now despised,” Cramer said. “These tables are turned. The essential retailers have lost their mojo. … The specialty players have come roaring back.”

At the broader-market level, the tech-heavy Nasdaq Composite was dealt the largest blow. The index slid 2.7% on Wednesday, closing nearly 8% below a record close reached last month. The 30-stock Dow Jones Industrial Average dipped 121 points, or 0.4%, to close at 31,270.09. The S&P 500 slid 1.3% to 3,819.72.

Cramer called it a textbook rotation and said it has a limited shelf life. Money managers will keep rotating money away from the biggest winners in their portfolios to take advantage of lower prices elsewhere. The rotation won’t end until the economy reaches its expansion limit, when the yield on the 10-year Treasury stops rising and the Federal Reserve hikes rates from near-zero levels, he said.

For the nimble investor looking to fish for the bottom in growth stocks, Cramer recommended swapping into plane, train, auto and industrial stocks, endorsing Chevron and Pioneer Natural Resources as the only two oil stock worth playing.

For the non-nimble investor, he advised taking some profit in the big gainers and waiting to find new points of entry at lower prices.

“Once we get a cathartic collapse of epic proportions … then you can swap back from the boom-and-bust stocks to the consistent growers,” Cramer said. “In the meantime, we’ve got a glut of tech stocks and a shortage of cyclicals. Right now, you’ve got to go with the shortage.”

Disclosure: Cramer’s charitable trust owns shares of Amazon and Walmart.