We recently compiled a list of the 8 Stocks on Jim Cramer’s Radar. In this article, we are going to take a look at where LyondellBasell Industries N.V. (NYSE:LYB) stands against the other stocks.

Jim Cramer, the host of Mad Money, recently shared some investment guidelines based on his 40 years of experience. As we previously discussed in our article, Jim Cramer Talked About These 8 Stocks, Cramer emphasized that both bulls and bears can profit, but greed leads to losses, advising investors to take profits and avoid being overly greedy. His second rule is that paying taxes is acceptable. Finally, Cramer stressed the importance of not making large, all-at-once buys or sales, recommending gradual adjustments to positions instead.

In addition to these guidelines, Cramer’s next rule was to recognize the importance of distinguishing between damaged stocks and damaged companies. He explained that buying stocks from companies that are fundamentally flawed is a mistake with no chance of recovery, but stocks of companies that are simply experiencing temporary issues may present a buying opportunity. This distinction is critical because, as Cramer pointed out, there’s no “money-back guarantee” when buying into a company with long-term problems.

Investors should focus on finding stocks that are down for reasons that aren’t related to poor company fundamentals. Cramer then moved on to his next rule, which is to always do the relevant homework.

“If you want to build a portfolio of individual stocks, that’s a big if since there’s nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the S&P 500, well, you gotta be rigorous about it. Which brings me to my next rule: Do the homework.”

READ ALSO Jim Cramer’s Latest Lightning Round: 8 Stocks in Focus and Jim Cramer Discussed These 11 Restaurants and Retail Stocks

Cramer said that doing the homework means more than just picking stocks based on a gut feeling; it involves actively researching companies by listening to earnings calls, reading research reports, and staying on top of the news. Cramer noted that some investors dismiss this kind of work, seeing it as unnecessary or outdated in today’s fast-paced world. However, he was clear in his belief that failing to do proper research before buying stocks is foolish and can lead to poor investment choices.

Cramer further emphasized that doing homework today is easier than ever. With so much information available on the internet, there’s no excuse for not gathering as much data as possible. For those who don’t have the time or inclination to dive deep into individual stocks, Cramer suggested that index funds are a great alternative. Another crucial rule that Cramer continually stresses is the importance of diversification.

“The next rule is another essential that I harp on constantly: Diversify, diversify, and diversify. Always be diversified, that controls risk, and managing risk is really the holy grail of this business. What’s the biggest risk out there? It’s called sector risk.”

Sector risk refers to the potential for a specific sector of the economy to lag, which can result in negative impacts on investments within that sector. Cramer explained that sector risk is one of the most significant dangers to an investment portfolio, and diversification is the only way to protect against it.

He frequently says that “diversification is the only free lunch in this business” because it’s the one investment principle that benefits everyone. As per Cramer, by mixing different sectors in a portfolio, at least five according to him, investors can prevent themselves from suffering catastrophic losses if one particular sector takes a hit.

“Here’s the bottom line: Whether you’re an amateur or professional, you always need to do your homework and keep your portfolio diversified. This is the kind of routine maintenance that protects you from monster losses down the line. Remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. But don’t try to rationalize those losses because stocks don’t always come back to even or anywhere near that.”

Our Methodology

For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episodes of Mad Money. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 900 hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

LyondellBasell Industries N.V. (NYSE:LYB)

Number of Hedge Fund Holders: 38

Cramer expressed hesitation about chemical companies like LyondellBasell Industries N.V. (NYSE:LYB) having ‘similarly high yields” and remarked:

“Okay, I can’t say it’s necessarily safe that all the chemical companies have similarly high yields. A lot of them are related to China and China weakness. And I think each one has to be explored on its own and that… if this cycle stays bad and the Fed doesn’t cut rates quickly enough, a lot of these companies may end up to be, let’s say dicier than you’d like to be. How about that? I wanna be polite about it.”

LyondellBasell (NYSE:LYB) is a prominent global player in the production of petrochemicals, polymers, and fuels, serving a broad range of industries. The stock has a yield of 7.18% at the time of writing on December 27, which is up from the 5.62% yield it had when Cramer last talked about it in October.

As discussed in our article, Jim Cramer’s Exclusive List of 9 YEV Stocks, at the time, Cramer noted that the stock, like others in its industry, follows a cyclical pattern, performing well during strong economic periods but struggling during downturns. This cyclical nature explains why the stock has lagged this year due to broader economic challenges. He commented:

“Until very recently, the two largest economies of the world, the United States and China were both deteriorating. But think about what’s happened just in the past few weeks. First, the Fed officially kicked off a new easing cycle, starting with that double rate cut I just mentioned. And then there’s a clear consensus that we are going to get several more rate cuts done before the Fed is finished…

What really matters, though, is that the general direction of interest rates is lower, which means the Fed is your friend. Don’t fight the Fed. At moments like this, the textbook cycle stocks tend to become big winners.”

LyondellBasell (NYSE:LYB) generated $3.4 billion in cash from operations over the past year, with a 77% conversion rate of EBITDA into cash, close to its 80% target. Despite facing challenging market conditions that impacted its third-quarter cash generation, the company expects an improvement in the fourth quarter due to lower global interest rates and economic stimulus measures in China.

Additionally, the company is focusing on profitability through its value enhancement program, expecting to unlock $600 million in recurring annual EBITDA by the end of this year and $400 million in 2024.

Overall LYB ranks 4th on our list of stocks on Jim Cramer’s radar. While we acknowledge the potential of LYB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LYB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.