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

Whether the significant decline in stocks is a buying opportunity or a major red flag depends largely on the industry at the moment, Jim Cramer said on 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 the two, Cramer said: The digital payments company did indeed post higher and lower 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 other smaller Chinese phone makers. For Cramer, this was the secret ingredient that helped Skyworks recover better than PayPal, as China appears poised for a strong comeback based on earnings reports from 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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