The $80-to-$120 Theory: Part 2

Tuesday, 10 Jul 2007 | 10:06 AM ET

Today, Cramer’s explaining his $80-to-$120 rule. Large-cap market leaders near $80 in a bull market tend to get to $100, he said. If they make it to par and the bull market’s still raging, then he thinks there’s a good chance they’ll make it to $120.

From 80 to 120: Caterpillar
Mad Money host Jim Cramer says stocks that make it to $80 a share usually end up going to $120. He tests his theory out.

Cramer plans to highlight stocks that fit these criteria all week, stocks like Caterpillar, which closed today at just under $80. CAT’s the standard bearer for the bull market that is taking place in infrastructure and machinery, Cramer said. Almost everyone in machinery seems to be doing well. Just look at Paccar, Terex and Cummins. Cummins already made its $80-to-$120 move, and it looks like Paccar and Terex are ready to make their own. Companies like Fluor, Foster-Wheeler and KBR are hitting new highs in the infrastructure sector, and Cramer bets they’ll be shopping for CAT tractors and engines soon enough.

Caterpillar has a great international business as well. That and growth in China should offset any weakness in the U.S., Cramer said. The stock is cheap right now, too, trading at just 13 times earnings.

Bottom Line: Stocks that make it to $80 in a bull market Cramer thinks will usually make it to $120. CAT’s at $80, and it has every reason to go higher.

Jim's charitable trust owns Caterpillar.

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