CNBC’s Jim Cramer recommended investors buy companies that can put up strong revenue and earnings regardless of the economic backdrop, explaining the key qualities of a secular growth stock.

“You want great secular growth stories that can handle high interest rates or a weak economy, and have the ability to scale, meaning you can see how they might eventually grow into something enormous,” Cramer said. “Those are the kinds of stocks you can own for years, or even decades, racking up tremendous gains, as long as you regularly do the homework so that you can bail if something ever goes really wrong.”

Companies that can survive big interest rate hikes don’t have to borrow a lot of money, and its customers don’t depend on financing to make purchases, Cramer said. He stressed that he’s not against all companies borrowing money – noting that Amazon and Tesla borrowed large sums early on. But those two megacaps had “massive opportunities in front of them,” whereas a company like AMC was borrowing money “just to stay afloat.”

To determine whether companies can survive tough macroeconomic conditions, Cramer suggested it’s wise to review a stock’s history. For example, he continued, investors should look at how a stock fared during the great recession following the financial crisis or the brief Covid downturn. He said it’s ok if the stock took a hit as long as it managed to bounce back quickly once the market regained its footing.

Cramer also said it’s ideal for a company to have the ability to scale, meaning it has the capacity to grow into a larger outfit.

“Once you find a company that can handle higher rates or a weaker economy, like the Magnificent Seven, you’ve got my blessing to buy those stocks even if they look expensive, with high price-to-earnings multiples,” he said. “Wall Street’s willing to pay through the nose for consistently strong earnings growth and, you know what, you should, too.”

Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.

Disclaimer