Here's how to tell a red flag from a buy when a stock falls
Whether a huge decline in a stock is a buying opportunity or a major red flag largely depends on the industry right now, Jim Cramer said Wednesday.
That was the case for Skyworks Solutions and PayPal , which both saw shares tumble on the back of disappointing earnings reports.
In theory, PayPal should've been the buying opportunity of the two, Cramer said. The digital payments company actually posted top- and bottom-line beats, but merely shared weaker-than-expected guidance for the current period.
It still fell, however, because it "lives in the wrong neighborhood," Cramer explained. "At one point, PayPal was the darling of e-commerce. These days, it looks more like a bank and right now bank stocks are poison."
Meanwhile, Skyworks, a semiconductor firm, was saved by its tech connections.
On its earnings call, Skyworks didn't blame its biggest customer, Apple , for its losses. Instead, the company placed the blame on Android and smaller Chinese phone makers. To Cramer, that was the secret ingredient that helped Skyworks recover better than PayPal, because China seems set for a robust comeback based on the earnings reports of other companies currently operating there.
In the end, it all comes down to the viability of a given industry, he explained.
"My advice is simple: Tech blow up? Consider it a [possible buying opportunity,]" Cramer said. "Financial trashing? Let's just say take a hard pass."
Sign up now for the CNBC Investing Club to follow Jim Cramer's every move in the market.
Disclaimer
Source: CNBC
