If fear breeds selling, then it stands to reason that less fear should breed less selling. That was Jim Cramer's take on the markets Monday, as he told his Mad Money viewers that they should ignore the bearish pre-market action and keep an eye on the only three things the market cares about... earnings, Covid and interest rates.
The two sectors that matter most to the stock market right now are the transports and the banks, Cramer explained. If Covid is under control, that means the economy is growing, which is great news for the transports, which move the goods our economy needs. And if the Federal Reserve is preparing to raise interest rates, then that's great news for the banks, which will make more money on their loans.
The transports and the banks are the one-two punch that can keep the bears at bay. If both groups are roaring, it's almost impossible to keep the market down. That's because if the economy is moving, then retail is also strong, and if Covid is not as bad as we feared, then the travel and leisure stocks can also rally.
Now that we're off to a strong start for the week, Cramer saw little to keep the markets down, that is until Friday, when the latest Consumer Price Index might be able to throw a wrench in the works and bring inflation fears back into focus for investors.
Until then, however, we could be in for a very good week.
Unsettled Forecast for Cloud Stocks
The turbocharged cloud stocks used to be all the rage on Wall Street. But as inflation reared its ugly head and made the future earnings of these tech darlings less attractive, the entire cloud sector has gotten obliterated.
There are many reasons for this decline, Cramer explained. Some of the cloud stocks were pandemic plays like Zoom Video (ZM) - Get Zoom Video Communications, Inc. Class A Report and DocuSign (DOCU) - Get DocuSign, Inc. Report, which are in less demand now than a year ago. Others were newly-minted IPOs that came in too hot for the market to handle.
But while it only takes a few bad earnings reports to taint the entire group, Cramer was not willing to count them all out quite yet. Investors need to be very careful with the cloud stocks. Cramers looked at 50 of the major cloud stocks, including his self-anointed cloud "kings" and "princes," along with some of the most widely held among ETFs. What he found was not good.
A full 49 of the 50 names has fallen more than 10%, with the average decline coming in at 33%. The median cloud stock has lost 29%. Why is this a problem? Because at their peak, the average cloud stock traded for 27 times sales. Today they still trade for a lofty 18 times sales, which means the bottom is still not at hand.
So when will we see the bottom in the cloud stocks? Cramer turned to the end of 2018 for that answer. In December, 2018, ironically, the markets sold off after Fed Chair Jay Powell told investors he was willing to overshoot on interest rates to keep inflation at bay. Those comments caused a 24% decline in the Nasdaq and sent the average cloud stock down 35.5% before the bottom was reached.
Unlike 2018, this time, inflation is for real, and the Fed can't save us by clarifying some of their comments. That means the cloud stocks have more to fall and valuation will be the key to everything.
Among the stocks Cramer said were reasonably valued at current levels were names like Salesforce.com (CRM) - Get salesforce.com, inc. Report, VMware (VMW) - Get VMware, Inc. Class A Report and New Relic (NEWR) - Get New Relic, Inc. Report. Of those that trade at less than 10 times sales were Workday (WDAY) - Get Workday, Inc. Class A Report, Five9 (FIVN) - Get Five9, Inc. Report and Twilio (TWLO) - Get Twilio, Inc. Class A Report.
Cramer said names like Okta (OKTA) - Get Okta, Inc. Class A Report and ServiceNow (NOW) - Get ServiceNow, Inc. Report are currently trading between 10 to 15 times sales, which means they don't have far to fall before they become attractive. In the 15 to 20 times sales category are names like HubSpot (HUBS) - Get HubSpot, Inc. Report and CrowdStrike (CRWD) - Get CrowdStrike Holdings, Inc. Class A Report.
Still higher up the value chain are MongoDB (MDB) - Get MongoDB, Inc. Class A Report and Zscaler (ZS) - Get Zscaler, Inc. Report, trading at 20 to 30 times their 2023 projections. Cramer said these names have father to fall before becoming buyable, but are worth watching.
Investors looking for great ideas should always look for growth and innovation, Cramer told viewers. That's why he offered up his favorites from the new CNBC Next Generation 50 Index. With so many great companies to choose from Cramer offered his top five big and smaller companies.
Among the big boys were no surprises, including Amazon (AMZN) - Get Amazon.com, Inc. Report, Alphabet (GOOGL) - Get Alphabet Inc. Class A Report, Tesla (TSLA) - Get Tesla Inc Report, Apple (AAPL) - Get Apple Inc. Report and Palo Alto Networks (PANW) - Get Palo Alto Networks, Inc. Report. There's a lot to like at both Amazon and Google, Cramer said, while Tesla is the only maker of electric vehicles at scale. Apple is, of course, Apple; while Palo Alto is a great growth story as cybersecurity never goes out of style.
Among the "junior" list were Roblox (RBLX) - Get Roblox Corp. Class A Report, Etsy (ETSY) - Get Etsy, Inc. Report, Airbnb (ABNB) - Get Airbnb, Inc. Class A Report, Enphase Energy (ENPH) - Get Enphase Energy, Inc. Report and Affirm Holdings (AFRM) - Get Affirm Holdings, Inc. Class A Report. Both Etsy and Airbnb have reinvented their categories, while Roblox is building a whole new category of its own. All of those EVs need solar panels, which come from Enphase, and you might be able to buy all of these things with buy now, pay later processes provided by Affirm.
Time to Accept the Covid Risks?
In his No-Huddle Offense segment, Cramer said it might be time to treat COVID like we treat cigarettes. If you're not going to get vaccinated, including the needed boosters, then you need to just accept the risks of hospitalization and death.
We've done a terrible job messaging about the vaccines, Cramer said. We've always known that it was a three-shot regimen, but for almost a year it was pitched as just two shots. Now, as effectiveness is waning, Americans don't feel the urgency for boosters, which is why a Norwegian (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report cruise had 17 cases on board a ship where everyone was required to be vaccinated.
As the pandemic becomes endemic, Cramer said we're all going to need to accept these risks. If you're going aboard a crowded ship to countries with low vaccination rates and you haven't gotten your booster, then you need to accept those risks.
Here's what Cramer had to say about some of the stocks that callers offered up during the Mad Money Lightning Round Monday evening:
Penn National Gaming (PENN) - Get Penn National Gaming, Inc. Report: "The stock has been crushed, but to sell Penn or DraftKings (DKNG) - Get DraftKings Inc Class A Report down here would be a mistake."
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