The $80-to-$120 Theory

Tuesday, 10 Jul 2007 | 10:04 AM ET

Cramer has this theory: Stocks that go to $80 tend to go to $120.

Sure, it sounds like some crackpot, amateurish theory, but the man is no amateur. In fact, he said he had the empirical evidence to prove it.

From 80 to 120: Boeing
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.

These stocks are the leaders of the market, Cramer said, and the leaders tend to attract money during a bull market, which is what we’re seeing right now. The money sends them higher, cementing their status as leaders.

Cramer compared the S&P 500 at July 3, 2006 with the same day this year. The number of stocks over par ($100) jumped to 31 from 11. Of those 31, 19 were on the S&P last year and were under $100, eight were part of the index and above $100, and four were new additions. Of the 11 that were over $100 last year, three now are below par, but only because of two-for-one splits.

So what’s this all mean? Adjusting for splits, 34 stocks in the S&P 500 are over $100, including all 11 from last year and the 19 that broke the mark over the past year. For large-cap stocks in a bull market, once you break through $100, it looks like you stay there, Cramer said.

Bottom Line: It may fly in the face of reason, but Cramer can’t deny that the stocks that reach $80 in a bull market tend to go to $120. He’s devoting a whole series to this moneymaking phenomenon, and his first name is Boeing. Keep checking back for the others.

Questions for Cramer? madmoney@cnbc.com

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