Jim Cramer Says to Hold These 3 Cloud Stocks and Sell the Rest

On Friday, CNBC’s Jim Cramer offered a list of stock picks for investors who are bullish on cloud computing, but cautioned that he thinks there is more pain ahead.

“I recommend using this incredible rally actually as a rare opportunity to sell weaker cloud stocks in strength,” he said. “That said, some of them might be worth keeping, but only the highest quality names.”

Here is his list of guardians:

  1. CrowdStrike
  2. Datadog
  3. ServiceNow

Honorable mentions, which he likes but doesn’t necessarily recommend buying, include Selling power and Working day.

To compile his list, Cramer first looked at the WisdomTree Cloud Computing Fundan ETF that soared more than 13% on Thursday after October’s consumer price index turned softer than expected.

Cramer first narrowed the list of 75 stocks in the exchange-traded fund by eliminating companies with these qualities:

  1. Has a market capitalization of less than $1 billion
  2. Expected to be unprofitable next year
  3. Is only tangentially linked to the cloud
  4. Does not pass the rule of 40 test, which means that the sum of its revenue growth and profit margin is less than 40%

That left him with 13 stocks and he picked his three favorites.

Cramer argued that while he likes the stocks he picked, investors should take the opportunity to get out of their cloud stocks while they’re up. If you were trapped in these things, it gives you a chance to get out,” he said.

Disclaimer: Cramer’s Charitable Trust owns shares of Salesforce.

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