Jim Cramer says groups of stocks are ‘too toxic to touch’ after Dow tanks 1,000 points

Investors must take precaution about the stocks they want to put their money in because the coronavirus outbreak is disrupting supply chains of many companies, CNBC’s Jim Cramer warned on Monday.

American businesses are “far too dependent” on manufacturing products in China, he said.

The comments came after the three major U.S. stock indexes plunged more than 3%. The Dow Jones Industrial Average shed more than 1,031 points, suffering its biggest losses in two years.

Known as COVID-19, the virus is believed to have originated in the city of Wuhan in China’s Hubei province, where many factories are located. Wuhan remains under a mandatory quarantine. Fears about the coronavirus spreading outside China, including in South Korea and Italy, rattled the market.

“I need to emphasize, again, that the big risk from the coronavirus outbreak has to do with interrupted supply chains and a concomitant business slowdown worldwide,” Cramer said. “That means we have to be careful. You don’t want to buy something that’s about to have its supply lines cut.”

Cramer spelled out groups of stocks that he thinks are “too toxic to touch.”

Apple shares tanked almost 5% on Monday. Share prices of America’s most valuable company are down about 8% since the World Health Organization declared COVID-19 a global health emergency.

The tech giant, which assembles the majority of iPhones in China, warned last week that it may need to guide down its outlook for the March quarter. Cramer said Apple is still prone to downgrades by analysts.

Apple’s initial guidance for its second fiscal quarter forecast net sales to come in at $63 billion to $67 billion.

“Apple, to me, is a terrific company, terrific stock, but I can’t recommend buying it at this very moment because I think [the stock] could have more downside. I think some analysts could turn against it,” he said. “I expect analysts to start downgrading the stock on supply-chain worries, not to mention lost Chinese business — and that’ll be your chance.”

Apple’s troubles this quarter would also bleed particularly into its semiconductor suppliers’ earnings, said Cramer, pointing to Cirrus Logic, Skyworks Solutions, NXP Semiconductors and Qualcomm.

“Those are all in the blast zone and their stocks are not yet low enough to be worth picking at,” he said. “They all rallied after ‘phase one’ was agreed to in the trade war with China.”

Cramer declared Monday’s drain to be “day one” for the cruise industry. Norwegian Cruise Line, Royal Caribbean Cruises and Carnival Corp, the latter of which had a ship under mandatory quarantine in Japan, fell about 9%. The stocks are also down double digits form the day the WHO declared the public health matter a global emergency on Jan. 30.

“[Vacationers] do not want to be stuck on a cruise ship in the middle of a pandemic. The [forecast] numbers have to come down,” Cramer said.

The casino stocks of Wynn Resorts and Las Vegas Sands, which have exposure to China’s gambling industry, are also in “nightmarish” territory, Cramer said. He highlighted Penn National, however, as an enticing stock to pick up as a domestic and sports gambling play in the wake of a sports betting tie-up with Barstool Sports.

Airlines are also prone to more estimate cuts, due to an expected decline in international travel as the novel virus spreads beyond China. The looming estimate cuts will take those stocks lower, Cramer said.

U.S. carriers have suspended flights to China and Hong Kong. With more cases showing up in South Korea, Iran and Italy, the industry may face more headwinds.

“I wouldn’t touch a hotel name here, especially the hotels with lots of exposure to China or Chinese tourists,” Cramer said. “Those all need to be sold even with their stocks already down a great deal.”

Bank stocks are tough to own in a sell-off, especially with the state of the bond market as a backdrop, Cramer said. Investors often ditch the riskier stock asset class in a sell-off in favor of safer investments like government bonds, whose yields move inversely to prices.

The SPDR S&P Bank ETF, or KBE, which traces financial stocks, slid more than 3% Monday. Longer-term interest rates fell by about 10 basis points with the 10-year Treasury yield reaching its lowest point in nearly four years and the 30-year Treasury hitting a record low.

“Long-term interest rates are plummeting, which means the banks will have to once again rely very heavily on fee-based revenue. They can’t make that much on loans [when interest rates are low]. I’m betting the numbers need to be cut — number cuts mean sell.”

Disclosure: Cramer’s charitable trust owns shares of Apple

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