High-Multiple Stocks Get Shattered

The lights on Wall Street have become so harsh that if this were a different block, one a few streets over, say 7th Avenue, we'd have to fire all the supermodels because we found a couple of pimples underneath the makeup.

Sorry, Whole Foods (WFMI - commentary - Cramer's Take) simply isn't that bad. The stock suffers simply because it has too many points and is too easy to knock down.

Let me put Zimmer (ZMH - commentary - Cramer's Take) in the same camp: "Is it a guide down maybe as much as a penny? Maybe it's not a guide down. Oh yeah, it's a back-end-loaded quarter guide down -- pounce, sell, knock it out, it's not going up anyway."

Express Scripts (ESRX - commentary - Cramer's Take) gets a subpoena? That's worth negative 10 points. Two subpoenas? Heck, take it down 20 -- that's a whole lot of pimples. A Spitzer subpoena? Can't cover those pimples up. Next!

The educational stocks. Career Education (CECO - commentary - Cramer's Take) had a zit? Or was it Corinthian Colleges (COCO - commentary - Cramer's Take)? Aren't they all owned by Apollo (APOL - commentary - Cramer's Take)? Sell the whole group -- it's got terminal acne!

And so on.

I've seen this movie before. This is the "if it has a multiple, take it away" phase of this mini-bear market that has been going on since oil went sky-high. Anyone who has traded since we entered the period of awarding perfect multiples to the supermodels of the market knows that at the end of the bear phase, they take apart every Tyra Banks and Naomi Campbell out there. At this moment, Gisele Bundchen gets below a market multiple.

I'd like to ask what happens next, after we've decided that the supermodels and the pretty faces all are destroyed. History does not say, by the way, that we take up ones like DuPont (DD - commentary - Cramer's Take) and Dow (DOW - commentary - Cramer's Take) at this moment. No, not at all. History says that we decide which of these newly lowered supermodels is not so flawed that it deserves to sell at a higher multiple than its growth rate. We will look at who still grows at 20-plus, and go back and award those companies 22-28 multiples. OK, not 32 to 38. Those don't happen until we have rates coming down and the DuPonts and the Dows are missing numbers big. Which they aren't.

But at least you know which stocks are safe to walk down the runway without tomatoes being thrown at them because someone, somewhere spotted a potential whitehead in an otherwise pretty perfect upcoming third quarter.

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At the time of publication, Cramer was long Zimmer Holdings.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."