After stocks took a dive to open the trading week Tuesday, CNBCs Jim Cramer explained three ways investors can find buying opportunities.
Remember the three types of stocks to buy on down days: The ones that rallied anyway, the ones where youre finally getting a long-awaited pullback, and the ones that got recommended but failed to rally because of the bad tape, the Mad Money host said.
Take your pick [or] do all three, just so long as you approach the sell-off not as a reason to panic but as an opportunity.
He also advised owning an oil company, such as Devon Energy. Devon is down about 10% in the past month and the stock pulled back nearly 5% Tuesday alone.
As for the third group of stocks, Cramer recommended finding stocks of companies that failed to rally, despite a positive news catalyst. American Express shares should have moved $4 higher on Tuesday after it received an upgrade from a Goldman Sachs analyst to a buy call, he said.
Think of these stocks as textbook examples of what you can buy on a down day, Cramer said.
The S&P 500 had its first negative session in nearly two weeks and the Dow Jones Industrial Average failed to deliver a fifth-straight day of gains. The tech-heavy Nasdaq Composite, on the other hand, rose 0.17% to another record close.
When people buy stocks, we almost never nail the timing. When you buy a stock at the exact bottom, Im calling that a miracle. Much more often, you end up buying it too early or too late, Cramer advised. So you have to leave room, that way if the stock goes down you wont panic and sell. Instead, you can just take the pain in stride and buy more of a good company at a lower level.
Disclosure: Cramers charitable trust owns shares of Apple and Amazon.
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