Editor's Note: This article was originally published at 7:50 a.m. EDT on Real Money on July 30. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.
NEW YORK ( Real Money) -- Not all stocks lend themselves to buy recommendations. Some just lend themselves to admiration, because the companies behind them are so good that no one would argue with buying their shares.
That's how I feel right now about Amazon (AMZN - Get Report), Netflix (NFLX - Get Report) and Tesla (TSLA - Get Report). These three stocks defy any valuation explanation, yet they remain buyable for those who love growth at all costs -- and they all have growth at all costs.
Most stocks are valued by their price-to-earnings ratio. Others, because they are so new, get valued by a price-to-sales ratio. I am usually only comfortable putting my name on a stock as a buy if its P/E is less than 2x its growth rate. That's an arbitrary ratio but, after you have invested for 33 years, you pretty much know what your breaking point is -- and, while I have passed up on some real good stocks, this rule has kept me out of a lot of disasters.Other times, when I recognize that growth is accelerating and profitability could be on the horizon, I might be willing to take a leap of faith and recommend the stock as a speculation. In this case I'll know that, if it falters, there won't be much to show for it. That's gutsier, and I don't like to do it, but I also know that speculating wisely has made me a lot of money. These are rule-benders, and you bend rules only with an understanding that you could get clobbered. Finally, though, there are stocks that trade on no real moorings to any of these rules, powered higher by some invisible force or cult that can't be justified along any traditional lines. Sometimes there are whole armadas of these stocks, as there were at the time of the ticking dot-com bomb. Sometimes there are very few of them. Right now we're seeing three stocks that defy traditional valuation methods, yet are compelling as themes as -- yes -- love affairs that burn steamily. There's no real explanation here, other than pure lust for the product itself.
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