Home Business Jim Cramer sees more pain ahead in cloud stocks

Jim Cramer sees more pain ahead in cloud stocks

by MD Samsuzzaman Siyam

The red-hot software stocks of yesteryear are well off their highs, but it remains too early to call a bottom in the cloud plays, CNBC’s Jim Cramer said Monday.

“There’s been a lot of damage done, but given how much the stocks had run going into this sell-off, many of them could still experience a lot more downside before they start looking enticing,” the “Mad Money” host said.

In a list of 75 tech stocks, Cramer noted that on average they are down 37% from the highs. Despite the decline, their valuations remain elevated when compared to corporate outlooks.

Meanwhile, bond yields have steadily risen, making tech shares and their future earning potential less attractive. The yield on the benchmark 10-year Treasury note has climbed to 1.65% from below 1% since December.

“Without a major decline in interest rates, I think the cloud cohort will continue to struggle, and there’s no hurry to do any buying until we get to lower levels for most, if not all, of these stocks,” Cramer said.

Some software stocks, however, are nearing levels that are enticing. Using the “Rule of 40,” which measures the trade-off between a company’s profitability and growth rate, Cramer spotted a handful of names among the 75 stocks that are worth keeping an eye on.

Coinbase, Square, Carvana, Etsy, Coupang and Salesforce all meet the standard and trade below a sales multiple of 10, Cramer said. He also pointed to Roblox, ServiceNow, Affirm and RingCentral as intriguing opportunities.

“I think you can put on a small position here, but leave room to buy more at lower levels because I wouldn’t be surprised if there’s more pain in store,” he said.

Disclosure: Cramer’s charitable trust owns shares of Salesforce.

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