Behind the Screen

When JJC screened for companies whose growth rate outpaces their P/E multiple, he was pleasantly surprised.
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We don't do much screening work at Cramer Berkowitz. We don't find it very valuable. It is too imprecise and leads you down too many blind alleys. (By "screening," I mean identifying companies by certain specific criteria: book value, price-to-sales, rising gross margins, etc.)

But last night, struck by how low some stocks have gone, I had a screen run of all companies that are expected to grow by 30% that are selling less than 30 times earnings. For some, when a growth rate of a stock is higher than its

price-to-earnings multiple, the stock maybe considered cheap.

This notion is important because, remember, you are not always trying to figure out what is cheap or expensive. Often you are trying to find out whether something is cheap relative to its own growth rate.


(CSCO) - Get Report

has never been cheap. Still isn't. But if it were ever to have a P/E multiple that was lower than its growth rate -- let's say it was going to grow 30% and sold at 28 times earnings -- you would theoretically want to own it because it would be very cheap relative to where it sold in the past and very cheap relative to other stocks growing that fast.

The screen, not much to my surprise, turned up hundreds of stocks from dozens of industries. Many stocks have come down fabulously in price in this period (fabulous, again being relative, because it ain't too fabulous if you owned them).

I pointed this out to

Jeff Berkowitz

, my trusted partner, who, of course, pointed out what I would have said to him if our roles had been reversed: "How many of those companies won't make the numbers?"

He, like me, is suspicious that we will have a slowdown that will impact earnings next year, making these stocks turn out to be expensive by the time we get to next year. He is worried that a global slowdown, orchestrated by the

Federal Reserve

, could make those earnings estimates come down.

I am not so certain. I would never buy anything off this screen. But it is somewhat comforting to note that there are many, many more companies that are now considered cheaper than there were a quarter ago. Of course, in terrible markets, we go to extremes. In a terrible market, that list should quadruple three months from now.

But I just don't think things are that terrible anymore. I think things are getting cheaper and that's good. Something to think about.

Random musings: Jim Seymour

is blowing me away with his

series about CDs. You must read it now.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Cisco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at