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NEW YORK (TheStreet) -- Billionaire investor Carl Icahn's warning about the risks of junk-rated debt might scare you, but that doesn't mean you should write off the entire category.He sounded the alarm about high-yield -- or non-investment grade -- securities last week, saying the market is "extremely overheated." It's not the first time that observation has been made. Still, there is a case for you to keep at least a portion of your portfolio in this type of debt even though it's riskier. Specifically, you might want to consider the SPDR Barclays High Yield Bond or the iShares iBoxx $ High Yield Corporate Bond exchange-traded funds. Here's why: 1. -- If You Like Stocks, You Should Love Junk. I hear plenty of people who should know better say that junk-rated debt is just too risky. But these same people go out and invest in stocks, which are risky but have high returns over time. That attitude just doesn't make sense. If you like stocks, you should love high-yield securities. They're like stocks in drag. The returns for these lower-rated securities are highly correlated with those of the stock market. As the stock market rallies, you can expect the high-yield returns to rise too. The returns are also less volatile than those of stocks. I've talked to lots of strategists about this, and I've seen a variety of analyses. A general rule is that junk debt should give you two-thirds of the returns of the stock market, but with half the volatility. That's over the long term. 2. -- The Spreads Are Higher Than They Were In 2004. The extra yield investors receive over those provided by risk-free government bonds (the so-called spread) is not low in comparison with historical levels. In fact, spreads are now a little higher than they were before the heady days of the housing boom. In January 2004, the junk-debt spread was 4.05 percentage points. Now, it's 4.66 percentage points. Both figures are from the St. Louis Federal Reserve's FRED database. 3. -- Shaky Companies Benefit More From a Stronger Economy. As the economy grows better, less robust companies benefit disproportionately. Of course, highly rated companies, like ExxonMobil and Apple , do better when the economy does well, but shakier companies tend to get an even bigger boost. Think about how many more cell phone subscribers Sprint might add as the employment situation picks up. It's the largest holding in the SPDR ETF. Must Read: 10 Fortune 500 Showdowns With Activists You Never Heard About 4. -- The ETF Expenses Are Low And The Market For Them is Liquid. The SPDR has annual expenses of 0.4%, and the iShares has costs of 0.5% a year. The average expenses for specialty high-yield mutual funds are 1.08%, according to Morningstar. Average daily volume for both ETFs is in the millions of shares. So there's the case for high yield, but there are potential problems, too. First, the sub-prime lending crisis showed the vulnerability of credit markets. If we have learned anything in finance in the past decade, it's that the credit markets can crumble. Indeed, that was the central issue in the sub-prime crisis and the ensuing Great Recession. If the credit markets freeze again, even partially, it will be the high-yield sector that will feel it first and most. It won't be pretty. For that reason, you should consider a small allocation to junk securities, not a large one. Most investors wouldn't want to hold more than a third of their fixed-income allocation in junk and probably less. Second, the ETFs follow indexes. Both the SPDR and the iShares invest primarily in securities listed in high-yield indexes. That tends to mean that the prices of the bonds in those indexes are bid up a little. Higher prices mean lower returns. That's bad, but in addition, because of the indexing, debt that is deteriorating will stay in the fund. Active mutual fund managers can and do invest where they see opportunities inside and outside the indexed group of securities (including ditching the basket cases). A couple of funds worth considering are the Columbia High Yield Bond and the Ivy High Income . Both have five-star ratings from Morningstar and below-average expenses for specialty high-yield mutual funds. Must Read: Wells Fargo Goes Even Bigger on Mobile Homes With GE Real Estate DealClick to view a price quote on JNK. Click to research the Financial Services industry.
Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener. NEW YORK (TheStreet) -- Today was a down day for the markets, but investors should take it all in stride, Jim Cramer told his Mad Money viewers Wednesday. Selloffs like today are when the weak hands get flushed out, he continued, and ultimately that's a good thing. So what had the markets in retreat today? Well, first there were negative comments from activist investor Carl Icahn, who likened present-day stock prices to that of 2007. Ouch. But Cramer noted that Icahn is still fully invested in stocks like Apple , a stock Cramer also owns for his charitable trust, Action Alerts PLUS, so perhaps Icahn's assessment wasn't complete genuine. Then of course, the markets didn't like Greece, which was showing less confidence of a deal than it was yesterday. There were also downgrades of Goldman Sachs and Citigroup weighing down the banking sector, and downgrades of the cyber security stocks as well. Add all that to continued weakness in the transports and Cramer said the markets really didn't have anything positive to rally around during today's session. Must Read: Will Netflix Stock Split Mirror Apple's Success? What should investors do? Nothing, Cramer said, as they can simply wait for the negative stuff to pass... as it always does. Get Ready for a New Baxter It's been a tough year for medical supply giant Baxter International , a stock that's down 2.4% so far in 2015. But the turn may finally be at hand because the company is now set to spin off its bioscience division. As it's currently configured, Baxter is a difficult company to figure value. It derives 60% of its sales from medical products like pre-filled syringes, vaccines and infusion pumps, while 40% of its revenue stem from its bioscience products. In 2014, Baxter's earnings fell below its guidance, prompting the company in 2015 to stop issuing guidance altogether. The questions were raised about the safety of its 3% dividend yield, sending shares to 18 months lows. But then Baxter announced it will spin off its bioscience division as a company called Baxalta, news that has been sending shares higher ever since. As two separate entities, Baxter will be a cleaner, simpler story, Cramer noted, something that money managers will be able to easily value and will gravitate to thanks to easy comparisons and a peaking of the U.S. dollar. Sweet on Mondelez The time may finally be right for Mondelez International , the international half of Kraft Foods that was spun off in 2012, to start heading higher, Cramer told viewers. Mondelez got off to a sluggish start, but is now turning itself around as currency pressures begin finally abating. Mondelez is home of such beloved brands as Oreo, Triscuit, and Cadbury, among many others. The company is truly a global powerhouse, with 40% of sales from Europe, 20% from North America and 15% from Latin America, with the rest of the globe filling in the gaps. The company is number one in global market share for biscuits and chocolate and number two for coffee. Shares of Mondelez are up 13% so far in 2015, making new highs, because the company is streamlining production, cutting costs and focusing its efforts on its power snack brands. The company plans to reduce overhead by $1.5 billion by 2018 while at the same time investing for growth with five new production lines that will begin producing its products nearly twice as fast. Add to all of these positives the fact that the U.S. dollar may have finally peaked and activist investor Nelson Peltz taking an interest in Mondelez and Cramer said you've got a winning stock. Must Read: 4 Best Tobacco Stocks to Buy Now Fighting Infant Mortality In a special interview, Cramer sat down with Jane Chen, CEO of the privately held Embrace Innovations, a company combating infant mortality around the globe. Chen explained that 15 million pre-term and underweight babies are born every year and nearly three million will die in the first third days. Embrace has developed an inexpensive, portable baby warmer for developing countries that costs just 1% of traditional incubators. Embrace now has a for-profit spinoff that is selling the "Little Lotus," a swaddle blanket that uses some of the same technology. For every product sold, some of the proceeds will help fund their efforts to help one million babies around the globe. Cramer also spoke with Drue Kataoka, an artist helping to raise awareness of infant mortality through a project called "Touch Our Future," which can be found at touchourfuture.org Lightning Round In the Lightning Round, Cramer was bullish on Dow Chemical , Schlumberger , Salesforce.com , Hanesbrands , Dollar General and Dollar Tree . Cramer was bearish on Hortonworks and Family Dollar Stores . No Huddle Offense In his "No Huddle Offense" segment, Cramer pondered which made more sense, Netflix up $25 a share on the news of its 7-for-1 stock split, or Netflix down $2 a share in the wake of Carl Icahn liquidating his position and taking a victory lap. Must Read: 4 Big-Volume Stocks Triggering Breakout Trades Cramer reminded viewers that stock splits don't create any new value, but they do increase liquidity. That means a volatile and emotional stock like Netflix will most surely begin to settle down and start trading like a normal stock instead of a plaything for hedge fund managers like Icahn. To watch replays of Cramer's video segments, visit the Mad Money page on CNBC. To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.Click to view a price quote on AAPL. Click to research the Consumer Durables industry.
Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener. NEW YORK (TheStreet) -- It's amazing what happens when the markets stop fretting about Greece and start letting the good stocks shine, Jim Cramer told his Mad Money viewers Monday. Investors can choose from a whole menu of great stocks with long-term growth potential. Cramer was bullish on the classic growth names, stocks like Walt Disney , Nike and Stabucks , a stock which he owns for his charitable trust, Action Alerts PLUS, all of which are doing quite well. Then there are the banks, which profit from rising interest rates. Wells Fargo , another Action Alerts PLUS name, and JPMorgan Chase remained Cramer's favs among that group. He was also bullish on tech names with long-term growth stories like Skyworks Solutions . Cramer saw strength in biotech and regular tech, with names like Celgene and Apple , also an Action Alerts PLUS holding, getting the nod. Still other stocks included international names like Honeywell , as well as consumer packaged goods and even housing-related names like Home Depot . Finally, Cramer told viewers to also be on the lookout for more mergers and acquisitions, as the deals keep on coming on almost a daily basis. Stick with UnitedHealth With the Federal Reserve set to begin raising interest rates any time now, investors need to stick with secular growth stocks, like the health care cost containment companies. The best of breed player in that group is UnitedHealth Group . In addition to being our nation's largest health care provider, UnitedHealth has Optus, its "secret sauce" that includes a pharmacy benefit manager and services company that is expected to contribute up to 40% of UnitedHealth's total earnings in the coming years. Must Read: The 6 Best Stocks to Buy in the Dow Jones Industrial AverageUnitedHealth already puts up huge numbers, but the company is still expected to grow between 9% and 12% a year. Shares of UnitedHealth trade for 17 times earnings, a slight premium to its peers, but Cramer said it deserves that premium and more given its best of breed status and the fact its shares are up 86% over just the past two years. Should You Buy Ambarella? There's no doubt that shares of semiconductor maker Ambarella have been on fire of late, with the stock up as much as 150% so far this year. But with the massive selloff of nearly $30 a share in just the past two days, is it time to finally throw in the towel? The bear case for Ambarella is the company will fall victim to commoditization, is too levered to its largest customer, GoPro , and that its valuation is absolutely absurd. Meanwhile, the bulls say that the company makes the best products for the most lucrative end markets and thus deserves its valuation. Who's right? Cramer sided with the bulls, saying this video-capture chipmaker is one of only a handful of companies with accelerating revenue growth, or ARG. With shares now trading at just 30 times 2016 earnings, money managers will likely keep paying up for that growth. Ambarella isn't likely to succumb to commoditization as the company makes only high-end chips and continues to innovate. It's also diversifying itself away from GoPro into very lucrative-end markets like drones, surveillance systems, automotive video and body cameras. With 55% revenue growth expected in 2016, Cramer said this is one semiconductor stock that deserves its premium valuation, especially when shares have fallen so far in the past few days. Must Read: 3 Oil and Gas Exploration and Production Stocks to Buy Executive Decision: Bob Ward For his "Executive Decision" segment, Cramer sat down with Bob Ward, president and CEO of Radius Health , a biotech working on a new treatment for osteoporosis. Shares of Radius were up 386% in 2014. Ward said its new drug, Abaloparatide, is shaping up to be a far superior replacement for Forteo, the current drug offered by Eli Lilly , which currently has sales to the tune of $1.2 billion a year. During Radius' 18-month active trial, Ward noted that patients saw zero spinal fractures, a significant feat. He said the key to treating osteoporosis is not waiting until patients reach 70 or 80 years old and facture a big bone, like a hip, but to diagnose them earlier in their 50s. Abaloparatide is expected to be submitted to the FDA for approval by the end of 2015, with approval expected later in 2016. Lightning Round In the Lightning Round, Cramer was bullish on Opko Health , MarkWest Energy Partners and GameStop . Cramer was bearish on American Capital Agency , Agios Pharmaceuticals and Macerich . Must Read: 5 Rocket Stocks to Beat the Summer Doldrums No Huddle Offense In his "No Huddle Offense" segment, Cramer was talking takeovers. He said there are two kinds of takeovers, ones based on growth and ones spurred on by activist investors. In the former category there are deals like Anthem's bid for Cigna . Anthem wants growth and Cigna can provide it, assuming the two can agree on a fair price. Given that both companies are in the same business, the synergies are tremendous, making the deal a no-brainer. But then there are the activist-inspired deals, such as ConAgra , the lagging food company that could soon see itself up for sale as activists prod for change. ConAgra would be a terrific target for Kraft Foods , Cramer noted. Then there's Twitter , the Action Alerts PLUS name that Cramer argued wouldn't catch activist eyes because the company has no leader and could start losing money if it can't regain its growth. Without the safety net of an acquirer, Cramer said activist involvement in Twitter is unlikely. To watch replays of Cramer's video segments, visit the Mad Money page on CNBC. To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.Click to view a price quote on UNH. Click to research the Health Services industry.