CNBC’s Jim Cramer detailed an investment strategy for a cloud software equity group on Monday, after the cohort was hit hard by a sector rotation on Wall Street.
The host of “Mad Money” and his team have compiled 50 stocks in the cloud space, from heavyweights like Salesforce to mature players like Okta and recent IPOs like AppLovin and UiPath. All but one of the companies analyzed were down more than 10% from their highs at Friday’s close. The average drop at that time was 33%, Cramer said.
Cramer said the recent sale is reminiscent of a period in late 2018, which turned out to be a good buying opportunity for many cloud companies. However, he stressed that it is not clear when this period of weakness will subside and more pain may be to come.
For this reason, Cramer said investors who want to try to capitalize on the downside should focus their attention, for now, on those with “reasonable valuations.”
“Eighteen of the 50 names on our cloud list have single-digit price-to-sales ratios… which I have no problem with,” he said. “This includes Cramer-fave Salesforce.com, which is owned by my charitable trust, and VMWare, another king of the cloud. “
New Relic, which makes software that helps businesses track apps to identify and fix bugs, is another stock to consider right now, Cramer said. The stock had seen a turnaround ahead of the year-end sale, he said.
“In short, if you want to start picking up some cheap cloud stocks among the rubble, well, these have already fallen enough to be worth buying very gradually on the way down,” Cramer said.
The additional inventory seems reasonably valued when you consider sales estimates for 2023, Cramer said, which is fair to consider “because in a month, 2023 will be next year.” Of those eight companies, Cramer said Workday, Five9, and Twilio are “the ones I love.”
Register now for the CNBC Investing Club to follow Jim Cramer’s every move in the market. Disclosure: Cramer’s charitable trust owns shares of Salesforce and