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- CNBC’s Jim Cramer said investors should start with a view on the economy and interest rates, then identify sectors and stocks positioned to benefit from that backdrop.
- He said PepsiCo has the makings of a potential buy, citing its roughly 4% dividend yield, historically low valuation, and potential boost from falling gasoline prices.
CNBC’s Jim Cramer on Wednesday walked investors through how he begins to hunt for stocks to buy in the current market.
“When you’re searching for stocks to own, you need a worldview,” the “Mad Money” host said. “That means, first, a view on the economy and interest rates. You have to start with that, because those are the essentials.”
On Wednesday, the S&P 500 lost less than 0.1%, while the Dow Jones Industrial Average dipped 0.2% and the Nasdaq lost roughly 0.1%. Cramer said the broader economy is relatively stable and inflation could be nearing a peak, particularly if oil prices continue to fall, even as the personal consumption expenditures ran slightly hotter than expected in July, rising 3.7% from a year earlier. That outlook, he said, serves as the starting point for determining which sectors — and ultimately which stocks — he wants to own.
Cramer said he would typically look to the technology sector, but political opposition to data center development and other uncertainties have complicated the sector. He noted that travel and leisure could benefit from cheaper fuel, but those businesses depend heavily on discretionary spending, making them less attractive as inflation-weary consumers prioritize value and look for ways to save.
That led Cramer to search for companies that could benefit from lower oil prices while offering downside protection through a sizable dividend. PepsiCo caught his attention.
“Eureka, it fits,” Cramer said.
PepsiCo offers a roughly 4% dividend yield and trades at about 16 times 2027 earnings, a valuation Cramer considers attractive. He also pointed to CEO Ramon Laguarta’s repeated comments that elevated gasoline prices have pressured sales, suggesting a decline in fuel costs could provide a meaningful tailwind.
Still, Cramer stressed that finding a stock that fits his macro thesis is only the beginning of the investment process.
“That’s the genesis of an idea. Not a position,” he said. “I’ve walked you through the starting point of the process … After you come up with the idea, you have to do the homework: study the company over many years, check ingredients, see what management has to do and figure out if they’ll do it.”
“We have the start of a potential buy here with PepsiCo,” Cramer said. “For me, the question is, do I put this in the bullpen for the Charitable Trust? And you know what? If you want to know the answer, you have to join the Investing Club.”
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