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Cramer says that the basis for a mild recession is a strong consumer. And he knows consumers are doing well because banks just reported earnings.

“We’ve heard from a number of banks in the last week, and their voices spoke as one. The consumer has a dynamite balance sheet.”

He further explains that with a strong job market and all the money consumers have saved up during the pandemic, it’s possible that they can “ride out a wave of disappointment.”

If the recession turns out to be mild, stocks that have already been badly beaten could provide an opportunity.

Cramer’s favorites in such a scenario include chipmaker Micron (MU), homebuilder D.R. Horton (DHI), media and entertainment conglomerate Disney (DIS), and e-commerce behemoth Amazon (AMZN).

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If the recession turns out to be spicier than just a mild downturn, Cramer says investors should be more careful.

“You can buy the higher yielding stocks, as interest rates will start to trend down, reducing the bond market competition,” he suggests. “But you’ve got to only buy high yielders that can still make their numbers.”

Cramer points to oil stocks as an example. He likes Pioneer Natural Resources (PXD) for its variable dividend policy — so investors get paid more when things are good. He also likes “half oil, half natural gas” company Coterra Energy (CTRA).

In addition, Cramer suggests dollar stores as a possible hedge against a deeper recession and names two companies: Dollar Tree (DLTR) and Dollar General (DG).

Mad hot

If we are heading towards a severe recession, Cramer says investors should “buy the ultimate defensive plays.”

Even some of his favorites for a milder recession won’t work here.

“If we get more aggressive rate hikes than expected, then stocks like Micron and D.R. Horton — they will be obliterated,” Cramer says, adding that “anything related to advertising, tech and the industrials will crush you.”

So what are the ultimate defensive plays for an ultra-hot recession?

Cramer suggests Johnson & Johnson (JNJ), PepsiCo (PEP) and Constellation Brands (STZ).

Johnson & Johnson is deeply entrenched in the healthcare sector, which is known for being recession-resistant.

PepsiCo is a consumer staples giant with a portfolio of iconic brands like Pepsi-Cola, Mountain Dew, Lay’s, and Quaker — products that consumers would continue to buy even in a severe downturn.

Finally, Constellation Brands is the maker of Corona, Modelo, and Pacifico. Whether boom or bust, beer drinkers drink beer, so the company should remain resilient.

More: What's Jim Cramer's net worth?

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