CNBC’s Jim Cramer explained the key characteristics of long-term growth stocks and encouraged investors to buy companies that can generate strong earnings and profits regardless of economic conditions.
“You want a great long-term growth story that’s resilient to high interest rates, economic downturns, and scalable. That means you can see how it’s going to grow into something huge at the end,” Cramer said. “These are the types of stocks that you can hold for years or even decades and make huge profits if you do your homework regularly in case something really goes wrong.”
Kramer said businesses that can withstand large interest rate increases don’t need to borrow as much money, and customers don’t rely on loans to make purchases. He stressed that not all companies are against borrowing money, pointing out that: Amazon and tesla I borrowed a lot of money early on. But while these two megacaps “have a huge opportunity in front of them,” AMC They were borrowing money “just to get on with their lives.”
Cramer suggested that it’s wise to look at a stock’s history to determine whether a company can weather difficult macroeconomic conditions. For example, he continued, investors should pay attention to how stock prices performed during the Great Recession following the financial crisis and the temporary economic downturn caused by the coronavirus. He said it doesn’t matter if stock prices take a hit, as long as they can bounce back quickly once the market regains its footing.
Kramer also said that ideally, a company would have the ability to scale, or grow into a larger organization.
“When you find a company like the Magnificent Seven that can withstand rising interest rates and a weak economy, you’re lucky to be able to buy those stocks even if they look expensive and have a high price-to-earnings ratio,” he said. “Wall Street is willing to pay for consistently strong profit growth, and of course you should too.”
