Jim Cramer: The Whole Oil Sector Is a Free-Fire Zone

NEW YORK (Real Money) -- These oil and oil-services plays seem almost defenseless. They are so piled on to, so shorted, and they seem to have no ammunition to combat the sellers.

Now, the majors, of course, have dividends that are well spoken for. Many also have stock-buyback programs in place.

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But, as I watch Ensco  slowly sink into the muck of the shorts -- even after the company has declared a dividend and even though it has plenty of liquidity -- I am reminded of something. A 10% dividend means nothing if people think a stock is going down 20%, or if they believe the company will eliminate its dividend in order to get through this period.

Needless to say, if Ensco is in trouble, we know what to think of Seadrill -- sans dividend -- and Transocean .

But what astounds me is the lack of firepower at the independent oil names that keep going down. Their stocks might be cheap vs. the assets, but the companies can't afford to buy back shares and would otherwise be at attractive prices given what now seems like an overreaction -- if, that is, we see a snapback.

In other words, the group remains a total free-fire zone, even among the majors that can buy back stock, but I remain convinced that the majors with dividends are the place to go first. I would then go to Schlumberger , as it is a huge beneficiary of the potential Halliburton -Baker Hughes tie-up, and it arguably has the best balance sheet of the entire sector.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

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TheStreet Ratings team rates SEADRILL LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEADRILL LTD (SDRL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and weak operating cash flow."

You can view the full analysis from the report here: SDRL Ratings Report