CNBC’s Jim Cramer on Wednesday offered investors a list of stocks he believes could be great portfolio growth.
“We only … want stocks if they are reasonably priced because this market has very little patience for anything too expensive,” he said.
Here is their list:
Earnings season shifted into high gear on Friday with reports from major banks and airlines, and Cramer said he is concerned that analysts’ earnings estimates for 2023 seem too high given the state of the economy.
“I’m betting many companies will give conservative forecasts, and analysts will lower their full-year estimates if they are worried about a Fed-induced recession due to multiple rate hikes,” he said.
As a result, he decided to focus on the stocks’ price-to-earnings-to-growth ratios when compiling his picks. “It tells you whether a stock is cheap or expensive relative to its own growth, which is what really matters,” he said.
cramer’s stock screen method
To come up with his list, Cramer first took all the stocks in the S&P 500 and removed those that did not have meaningful analyst coverage. Then, they excluded companies that are expected to lose money or have negative earnings growth in 2023.
From this consolidated list, they removed companies with earnings growth expectations of less than 5%. Stocks with “nosebleed” price-to-earnings multiples were also getting axed.
“This market hates anything with a high price-to-earnings multiple, so anything trading at more than 30 times earnings is out,” Cramer said. He also cut stocks trading below 10 times earnings, because “a low multiple is a sign that Wall Street simply doesn’t believe earnings estimates.”
He then got rid of all stocks with less than 2% dividend yield, leaving him with 77 names. Finally, they ran a PEG ratio screen on stocks, weeding out stocks where the price-to-earnings multiple was more than twice the earnings growth rate. Left with 40 names, he picked his top five.
Disclaimer: The Cramer Charitable Trust holds shares of Morgan Stanley.
