Jim Cramer, host of CNBC’s “Mad Money” and Investing Club, says it’s always possible to find stocks with high growth potential — if you know how.
Sometimes it can be as simple as liking a company and its products, then researching whether the stock is worth investing in, Cramer told CNBC Make It.
Such was the case for Cramer’s daughter when she decided to invest in electric car maker Tesla. In 2019, she was driving from Oregon to Los Angeles and decided to rent a Tesla. She hadn’t liked cars before, Cramer says, but she was amazed at how much she enjoyed driving an electric vehicle and how easy it was to refuel.
“She said it was the most fun car in the world,” says Cramer.
His daughter was sold on Tesla, but Cramer himself was skeptical of the company and pointed out that the stock was expensive.
Still, Cramer’s daughter said she believes in Tesla CEO Elon Musk. She also said Cramer was biased against the company because he was too old to see the potential in electric cars.
“I’m going to save to own a Tesla and I want to buy Tesla’s stock,” Cramer recalled.
Sure enough, she bought and saw Tesla shares go up 10x, Cramer says. “She had beliefs. She did the work and bought it,” he says. When you invest in the shares of a company, “the bottom line here, do you like it?”
If the answer is yes, then you should “do the homework” to decide if it’s a worthwhile investment, starting by checking the company’s filings with the Securities and Exchange Commission. These reports provide information on key metrics such as revenue, net income, debt ratio, and cash flow.
You will also want to learn as much as possible about the company and its competitors. You can do this by reading news reports, browsing the company’s website, and listening to company earnings calls, if available.
Whichever company you choose to research, picking one you like can be a great way to identify a stock that has growth potential. That’s why it’s important to understand your preferences as a consumer, says Cramer.
“When you want to invest in a high-growth stock, you have to know yourself,” he says.
Plus, if a company creates an innovative product that you love, it’s more likely to continue making great products even as consumer demand changes, Cramer says.
He cites Alphabet as an example: Like Google, it first started out as a search engine company, before dominating ad sales. Similarly, Netflix was a DVD mail-order business before it turned to streaming.
“We buy company stocks here — not speculative lease stocks — and a lot of people confuse them,” Cramer says. When you believe in a company and its potential, you’re more likely to ignore short-term declines in its stock value and hold onto them for the long term, he says.
“When the [stocks] go down and you don’t believe in them, you sell,” he says. “The equivalent of buying high and selling low – capital sin.
To learn more about investing, you can join the CNBC Investing Club with Jim Cramer at a reduced rate.
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