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Free Stock Picks - Jim Cramer

How Jim Cramer Beat The Market

His simple formula to find cheap stocks

If a stock has a price to earnings multiple, P/E (remember, Price = Earnings x Multiple) that is lower than its growth rate, then that stock is cheap. If a company has 10% growth, but trades at 8 times earnings, this rule, which is indispensable, says it’s cheap. If it has 10% growth and trades at 10 times earnings it’s still dirt cheap. That puts a nice boundary on the low end of the stock price range. Any stock with a multiple more than twice its growth rate is too expensive and should probably be sold. So again, a company with a 10% growth rate and its stock is selling at 20 multiple, you should be a seller. You buy it if you’ve got a growth rate
that is just a little bit more than its P/E multiple.

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