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Why Investors Should Be Wary of Multiple Expansion: Jim Cramer

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In his Real Money column, Cramer touched on multiple expansion and why he's not a fan of "rallies based on nothing."

"I don't trust multiple expansion, not that I am necessarily drawn to multiple contraction, lest I stumble on a value trip, although I think CVS's (CVS) - Get Free Report merger with Aetna doesn't produce a black hole as much as a rebirth," Cramer wrote in his column. "And if I didn't believe so strongly in the long term of those we are paying more for, I would probably do some trimming of those that have had rallies based on hope."

"Take a look at the news flow and the analyst reports, are there earnings bumps?" Cramer asked. "That's the key."

"If someone raises earnings, then you're good to go. That means that's not based on multiple expansion," he continued.

Otherwise, Cramer said, investors are just paying more for the same estimate. "That's a suckers game," he added.

Be careful, he warned.

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Related. Jim Cramer: I'm Not Buying This Tech Multiple Expansion

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