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Cramer says the S&P 500's biggest 2017 losers could be prime for speculation

CNBC logo CNBC 1/6/2018 Elizabeth Gurdus

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CNBC's Jim Cramer knows that looking back on a strong year for the markets shouldn't only include analyzing the best performers.

That's why the "Mad Money" host paired his analysis of the S&P 500's cream of the crop with a look at the index's worst-performing stocks, many of which could still recover in 2018.

"In a bull market, it's not that easy to be a real cellar dweller," Cramer said. "You have to commit some pretty grievous sins to end up on this list. But remember, this is an incredibly forgiving market, so it's important not to get too judgmental lest we miss some real opportunities."

1. Foot Locker

The best of the S&P's bottom 10 stocks was Foot Locker, which saw its shares lose 34 percent over the course of 2017.

"A shortfall back in August took the stock down from $47 to $31 in just two days," Cramer recalled. "It was so hideous you might have thought people simply stopped shopping there altogether."

But Foot Locker managed to regain some momentum and rally into the start of 2018 after management forecast steady same-store sales and said that business was looking up.

"I just wish it hadn't already rebounded so much from its lows. If not for that, I'd say, 'Hey, domestic retailer, tax reform, better consumer, why not just buy it?' But I would like to wait for a little bit of a pullback," the "Mad Money' host concluded.

2. Signet Jewelers

The S&P's ninth-worst stock was Signet JewelersSIG, down 40 percent for 2017.

Cramer said Signet is still subject to a host of negative catalysts including the demise of mall-based stores (Signet owns Zales and Kay Jewelers, among others) and reputation issues after a Washington Post investigation into sexual discrimination at the company.

"[New CEO] Gina Drosos is trying to clean things up. But sales and earnings do look like they've peaked, making me think that this stock represents neither value nor growth," Cramer said. "I wish the new CEO luck, but at best, this one is what I would call a work in progress with a just-OK business model and, yes, a tarnished reputation. Hard pass."

3. Advance Auto Parts

Cramer was puzzled by the S&P's eighth-worst performer, the stock of Advance Auto Parts. The largest car parts retailer in the United States by store count, Advance Auto Parts got caught up in a storm of selling that plagued the entire auto sector for much of 2017.

The main reasons for the selling? The potential for Amazon to get involved in the car parts retail space and a mild start to the winter season, Cramer said.

"Advance Auto Parts, down 41 percent last year, seems intriguing, especially with a good management team and a turnaround plan in place," he said. "I think it's worth speculating on for either a turn or a takeover."

4. Chesapeake Energy

Even with cold fronts sweeping parts of the United States and spiking demand for natural gas, a larger glut of the fossil fuel weighed on shares of Chesapeake Energy in 2017.

Shares of the S&P's seventh-worst name ended the year down 43 percent, and Cramer said the surplus of natural gas would likely keep Chesapeake's stock under pressure in 2018.

"If you're a believer [in natural gas], though, I suggest owning Cabot Oil & Gas, very high quality, [or] Apache, an understated natural gas company, not Chesapeake, which is a bedraggled security because of a hideous balance sheet," Cramer said.

5. Mattel

Much of Mattel's 2017 weakness was tied to Toys R Us, the biggest brick-and-mortar toy seller, filing for Chapter 11 bankruptcy protection, Cramer said.

"The best thing that could happen would be this toymaker accepting a bid from Cramer-fave Hasbro, something that makes a lot of sense with [Mattel's] stock down 44 percent last year. But with a new CEO just installed, I think that that's become highly unlikely," the "Mad Money" host said. "I say you wait to see what happens with Toys R Us. This stock goes lower if they decide to liquidate their stores."

6. General Electric

Fifth from the bottom of the S&P's worst names was General Electric, which Cramer covered ad nauseam in a recent round-up of the Dow Jones industrial average's 2017 winners and losers.

"I now regard GE as a play on oil with a health care kicker," Cramer said. "Oil's going higher and that's going to give new CEO John Flannery some breathing room. Let's see what he says on the company's upcoming conference call. It's going to determine a lot."

7. Envision Healthcare

The S&P's fourth-worst stock was Envision Healthcare, a physician services company facing headwinds tied to the damage from Hurricanes Harvey and Irma and rising labor costs.

"Your hope here might be a bid, and that's something that's being speculated on because the company pulled out of the J.P. Morgan Healthcare Conference that starts next week," Cramer said. "That said, if business is bad or at least as bad as it looks, who the heck would want to buy Envision, even with the stock down 45 percent last year?"

8. Scana

Struggling South Carolinian utility play Scana, which managed to snag a takeover bid from utility giant Dominion Energy this week, took the third-worst place in the S&P's losers.

Even so, Dominion CEO Tom Farrell told Cramer on Thursday that he was bullish on the merger deal's longer-term prospects.

"It's a rare instance of a stock that was down 46 percent in one year immediately making you money in the next," Cramer said. "I'd ring the register in Scana if I owned it and I would buy ... shares in Dominion, which has been hammered because of the Scana bid and the weakness in the whole utility group."

9. Under Armour

Down 50 percent for 2017, Under Armour came second-worst for the S&P's stocks, falling behind competitor Nike as it expanded its technological wares.

"We don't know if it is too late and Nike's just beaten them no matter what," Cramer said. "If the stock pulls back to where it was just a few weeks ago — it's had a major rebound in the last 10 days — you could have a good trade going into the quarter."

10. Range Resources

Last and least in the S&P was natural gas company Range Resources, which Cramer said rivaled Chesapeake for the worst balance sheet in the space.

"This one can bounce, but once again, there are much better natural gas stocks you can own for the long term," the "Mad Money" host said.

Final thoughts

After analyzing the dogs of the S&P, Cramer concluded that forgiveness is more of a friend than a foe in this "beast" of a market.

"In a meaner, darker market, I'd say, 'Don't bother with any of these,'" he said. "But we're in a market where last year's third worst performer gets a takeover bid right out of the chute, where retail's now looking up, where the weather's so cold that it's turning losers to winners."

"The bottom line? Weirdly, almost every one of these losers has a decent speculative thesis," Cramer continued. "It's not exactly a buy list, but you know what? If you made it through 2017 with these, you might as well see what the beginning of 2018 brings before you jettison them just in case another Scana-style fairy tale comes true."

Click here to read more from CNBC's Jim Cramer and other top money experts

Disclosure: Cramer's charitable trust owns shares of Apache, General Electric and J.P. Morgan.

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 - Vine Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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