CNBC’s Jim Cramer warned investors on Wednesday that while there are some stocks with low price-to-earnings multiples that look cheap and therefore investable, it’s worth noting that they aren’t always recession-proof.
“There are stocks with insanely low price-to-earnings multiples that can’t be bought under any circumstances,” the “Mad Money” host said. “Then there are the higher-quality ones that you can justify owning if you feel a little more sanguine about the economy.”
However, because these stocks have toppled before during the height of the pandemic, it’s possible they will continue to fall if the market doesn’t recover, Cramer said.
“If we get a steep recession, all four could go much lower. Keep that in mind if you take the risk,” he said.
Cleveland Cliffs is a stock with a low price-to-earnings multiple that investors should avoid completely, he added, predicting that the stock has more downside to it.
“When you buy a stock with an extremely low price to earnings multiple and yet the darned thing still goes down, that’s because these stocks only look cheap thanks to the fact that the earnings estimates … are too high,” he said. “They can go lower and then lower and then lower.”
Disclosure: Cramer’s Charitable Trust owns shares of Ford.
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