Key Points
- CNBC’s Jim Cramer cautioned against chasing “parabolic” tech and AI stocks, warning those trades can quickly reverse.
- He emphasized the importance of finding opportunities in overlooked names and the need for diversification.
CNBC’s Jim Cramer said Monday he’s wary of investors piling into the market’s hottest trades, arguing that chasing “parabolic” moves often leads to painful losses and that better opportunities may lie in overlooked stocks. “Those are all too hot, hot, hot for me,” the “Mad Money” host said, referring to high-flying technology and semiconductor names tied to the AI boom. “When I buy stocks that are making parabolic moves, I tend to get hammered.” Instead of following the crowd into stocks like Sandisk , Intel or Advanced Micro Devices , Cramer said he’s taking the opposite approach: buying quality companies that have fallen out of favor. That’s why his Charitable Trust, the portfolio used by the CNBC Investing Club, recently purchased shares of Johnson & Johnson , even as health-care stocks have been “performing horrendously.” In fact, the health-care sector is the worst performing sector in the S & P 500 this year. “We are buying it in freefall,” Cramer said of J & J. “You don’t get to buy the best at a discount very often. When you do, you buy some.” He described Johnson & Johnson as “the best drug stock, or at least second best, after Eli Lilly ,” emphasizing that the company’s fundamentals remain strong despite negative sentiment weighing on the sector. The Club has owned Lilly for years. Cramer said much of the recent weakness in J & J shares has been driven by “noise,” including its concerns tied to talc lawsuits, that has overshadowed meaningful developments such as new drug approvals and strategic business changes . For Cramer, the takeaway goes beyond any single stock. He said investors should resist the urge to chase momentum and instead think more deliberately about portfolio construction. “Your portfolio always needs to have a decent mix between what’s hot and what’s not,” he said. That balance becomes especially important in a market led by a narrow group of winners. If sentiment shifts — whether due to changes in spending, valuations, or broader macro conditions — those same leaders can quickly lose favor, he argued. “If you have all tech and something fails … you’ll still have some winners in your portfolio,” Cramer said, underscoring the value of owning out-of-favor names alongside the market’s biggest winners . “Here’s something I was taught at Goldman Sachs: they don’t all go up at once. To which I always said, but something should go up.” Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market. Disclaimer Questions for Cramer? Call Cramer: 1-800-743-CNBC Want to take a deep dive into Cramer’s world? Hit him up! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Questions, comments, suggestions for the “Mad Money” website? ma****@**bc.com