Here’s how to distinguish a red flag from a buy when the stock is down

Whether the massive drop in stocks is a buying opportunity or a big red flag depends largely on the industry right now, Jim Cramer said Wednesday.

Such was the case for Skyworks Solutions and PayPal, which both saw shares plunge on the back of disappointing earnings reports.

In theory, PayPal should have been a buying opportunity for them, Cramer said. The digital payments company actually posted better results, but only shared weaker-than-expected guidance for the current period.

Kramer explained that he still falls because he “lives in the wrong neighborhood.” “At one time PayPal was the darling of e-commerce. These days it looks more like a bank, and now bank stocks are toxic.”

Meanwhile, Skyworks, a semiconductor company, was bailed out by its tech connections.

On the earnings call, Skyworks didn’t blame its biggest customer, Apple, for its losses. Instead, the company blamed Android and smaller Chinese phone makers. For Kramer, this was the secret ingredient that helped Skyworks recover better than PayPal, because China looks poised for a strong comeback based on the earnings reports of other companies currently operating there.

In the end, he explained, it all comes down to the viability of a particular industry.

My advice is simple: technology is exploding? [possible buying opportunity,]Kramer said. Financial rubbish? Let’s just say take a hard pass.”

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