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3 stocks Cramer admires, but would not buy

Tuesday, 30 Jul 2013 | 6:52 PM ET
No Huddle Offense: Breaking tradition?
Tuesday, 30 Jul 2013 | 6:58 PM ET
Mad Money host Jim Cramer shares his final thoughts of the day.

(Click for video linked to a searchable transcript of this Mad Money segment)

Just because Cramer admires a company, doesn't mean he would buy its stock.

For example, At a party, "If you were to ask me, do you like Amazon, Netflix and Tesla – I would say, absolutely," Cramer said.

The Mad Money host thinks all three companies could redefine their respective industries. In fact, Cramer thinks the companies behind these stocks have so much potential, they're in a class of their own.

Admirable.

Peter Dazeley | The Image Bank | Getty Images

However, all 3 stocks already trade at extremely high valuations. "They defy any valuation explanation whatsoever," Cramer said. And the Mad Money host can't advocate buying stocks that defy explanation – valuation or otherwise.

Therefore, at a party, "If you were to ask me if I would buy Amazon, Netflix or Tesla for my charitable trust the answer would be 'no,'" he said.

Not buyable.

"I am usually only comfortable putting my name on a stock as a buy if it's price-to-earnings multiple is less than two times its growth rate. That's an arbitrary ratio but, after you have invested for 33 years, you pretty much know what your breaking point is," Cramer said.

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Stocks that trade at a higher premium present too much risk for Cramer. If growth is called into question the sell-off could be fast and furious.

"Although my rule has resulted in me missing some good stocks, it's also kept me out of a lot of disasters," Cramer says.

That's not to say Cramer thinks Netflix, Amazon or Telsa are potential disasters – he doesn't. But on Wall Street fortunes can change on a dime.

And to pros like Cramer the path to prosperity begins with discipline.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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