CNBC’s Jim Cramer warned investors on Wednesday that while there are some stocks with low price-to-earnings ratios that appear cheap and therefore investable, it’s worth noting that they’re not always recession-proof.
“There are stocks that have insanely low price-to-earnings ratios that you absolutely cannot buy,” the Mad Money host said. “Then there are the higher-end ones, which you can justify owning if you’re a little more confident about the economy.”
Cramer highlighted stocks in Nucor, Toll Brothers, Ford and Whirlpool, which are trading at low price-to-earnings ratios and could be great bets if the economy holds up.
However, since these stocks have already plummeted during the peak of the pandemic, it’s possible they could fall further if the market doesn’t recover, Cramer said.
“If we get a severe recession, all four could go much deeper. Keep that in mind if you take the risk.” he said.
Cleveland-Cliffs is a low price-to-earnings stock that investors should avoid entirely, he added, predicting the stock had more downsides.
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“If you buy a stock with an extremely low price-to-earnings multiple and the damn thing still goes down, it’s because those stocks look cheap because the earnings estimates are too high,” he said. “You can go deeper and then deeper and even deeper.”
Disclosure: Cramer’s Charitable Trust owns shares in Ford.
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