Jim Cramer wants people to sell all of their stocks. Even though the market may keep falling, that might not be a practical solution for everyone. There are several things investors can do to at least partially save themselves from a falling market and get in position if stocks move up again.

1. Sell your dogs. No matter how much an investor loves a stock, firms in the second or third tier of their industries are going to get hurt more. They will get hit by both a falling market and a recession. Some good examples are AMD (AMD), which runs a distant second to Intel (INTC). Yahoo! (YHOO), which is well behind Google (GOOG) in search is another company which will find the going especially tough. Palm (PALM) runs behind Apple (AAPL) and RIM (RIMM) in the smart phone industry. In an awful market, being in second place means being in last place.

2. Get out of stock with big debt loads. These companies may have been growth prospects in industries that do well in a good economy. In a financial system with zero credit, refinancing big debt loads is going to be nearly impossible. The troubled firms which can do it will have to wipe out shareholders to get cash. Some of the really well-known operations in this category are Level 3 (LVLT), Sirius (SIRI), and big cable TV company Charter Communications (CHTR). If they stay in business it will be because the debt-holders take all of the equity.

3. Look for companies which have five years worth of cash, even if they don’t make a dime. Most people look at enterprise storage leader EMC (EMC) as boring. That may be right. Last year, the firm’s operating margin was not much better than 10%. It made $1.7 billion on more than $13 billion in revenue. If IT spending gets cut to the bone, EMC might even start to show modest losses. With $5 billion in the bank, that may not matter.

4. Look for companies which can do well in a recession. Consumers have to buy necessities even if things get very, very bad. Wal-Mart (WMT) said its same-store sales rose 2.2% last month. In a recession, that is impressive. Bargain hunters are still going there. Procter & Gamble (PG) will keep doing well. People will continue to buy razors and soap. Pfizer (PFE) will keep selling drugs to sick people.

5. Get into companies with dividends that are unlikely to be cut. AT&T (T) yields 6% and Verizon 6.1%. Both firms are out of favor but make a lot of money and have solid balance sheets. As much as the market likes GE (GE), with its balance sheet, its dividend is safe.

6. Buy shares that sell products to addicts. Liquor and cigarettes do well in almost all economies. Many of the customers these companies have can’t stop consuming even if the economy is bad. First on that list would be tobacco giant Altria (MO). The firm also has a 6.6% yield and tremendous earnings and cash flow. Brown-Foreman makes hard booze and wine. Diageo (DEO) is probably the most diversified booze company in the world.

7. The world is still full or warmongers. Shares in defense companies will be okay. Whether it is the US in Iraq, Russia in Georgia, or rebels trying to overthrow the Nigerian government, weapons sell. Northrop Grumman (NOC) is the leader among this group which also includes General Dynamics (GD), and Lockheed Martin (LMT). War will always be with us and certain American companies mean to profit from that.

8. Look for stocks which are likely to fall much less that the market. These would tend to include market leaders in their industries, companies with strong balance sheets, and operators who sell products or services which will retain modest demand. Microsoft (MSFT) would have to be near the top of this list. Intel (INTC) falls into this category. So does McDonald’s (MCD).

9. You can never lose with oil stocks. Crude may still go down a bit, although The Department of Energy says oil prices will be back over $110 next year. Oil remains a limited commodity and demand in places like China and India may slow, but these countries can’t pick up their rapid growth without a ready stream of black gold. OPEC is unlikely to let prices fall much further. The cartel’s members like the payout too much. Exxon (XOM), Conoco (COP), and Chevron (CVX) still have large dividends, bullet-proof balance sheets, and outstanding cash flows. They may take some damage as crude falls, but the dynamics of oil make the long-term trend up.

10. Sell financial stocks at all costs. Forget the government bailout. As long as housing prices keep falling and mortgage defaults stay high, the toxic paper problems at banks and brokerages will get worse. It is not accident that Bear Stearns and Lehman are gone and that Fannie Mae (FNM), Freddie Mac (FRE), and AIG (AIG) were seized by the government. It could happen again with other companies in the industry and probably will.

Douglas A. McIntyre

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