The markets shrugged off the drone attacks against oil infrastructure in Saudi Arabia over the weekend, and Jim Cramer told his Mad Money viewers Monday that's because we live in a very different world than we did just a decade ago.
In fact, not only did the markets not plunge on the steep spike in crude oil prices, some stocks even managed to rally. The fact is that Saudi crude matters less than it did in years past, Cramer explained. The U.S. has increased its production from five million barrels a day to 12 million barrels, with 17 million barrels a day possible once pipeline and tanker bottlenecks can be solved. On the other hand, our trade-war rival China may have a harder time with rising gasoline prices.
So what should investors be buying? Cramer said he'd avoid stocks like the airlines, as they take a direct hit with rising fuel costs. That's why American Airlines (AAL) - Get Report plunged 7% by the close. He's also avoid retail, as higher gasoline prices mean less spending this holiday season.
Cramer would be a buyer of the defense contractors, however, with L3Harris (LHX) - Get Report being among his favorite. Cramer suggested Lockheed Martin (LMT) - Get Report and Raytheon (RTN) - Get Report as two others in the sector.
On Real Money, Cramer has an analysis of who'll win and who'll lose after the oil attacks. Get more of his insights with a free trial subscription to Real Money.
Cloud Stocks With a Silver Lining
The cloud stocks have been hit hard in recent weeks, Cramer told viewers, and that means investors need to stick with only the best-of-breed companies. In this environment, only cloud stocks with favorable fundamentals and valuation deserve a spot in your portfolio.
When it comes to valuation, Cramer chose the "Rule of 40" method, which says that a company's revenue growth plus its profit margin must be greater than 40. Anything less is worrisome. Using this metric, a company must have either rampant growth or some profits, but it can't lack both.
As for valuation, Cramer said valuations less than 10 times earnings are reasonable in this environment. Adding valuation to the mix, he concluded that only 11 cloud stocks made the cut. In addition to Twilio and Adobe, Five9 (FIVN) - Get Report , Workday (WDAY) - Get Report , Salesforce.com (CRM) - Get Report , Splunk (SPLK) - Get Report , RingCentral (RING) - Get Report , VMware (VMW) - Get Report , Zendesk (ZEN) - Get Report and Dynatrace (DT) - Get Report are worthy of a spot in your portfolio.
Cramer and the AAP team are are locking in their win with Palo Alto Networks (PANW) - Get Report . Find out what they're telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts Plus.
There's a new cloud stock in town, but does CloudFlare (NET) - Get Report make Cramer's list of worthy cloud candidates? The stock debuted on Friday at $15 a share and now trades for $18.63, but despite its gains, Cramer told viewers to steer clear.
On the surface, CloudFlare has an intriguing concept. The company offers cloud infrastructure and services that works seamlessly with other major cloud providers. From content delivery to cybersecurity, CloudFlare has become a trusted partner for many companies. But unlike other cloud software providers, CloudFlare has been delivering inconsistent growth and failed to meet the "Rule of 40" threshold Cramer used when valuing the rest of the cloud sector.
In fact, CloudFlare only scored 21% when adding up its 48% growth rate with its -27% gross margins. That makes it among the worst of the cloud stocks. Cramer said until the company's valuation falls in line, the stock cannot be bought.
Off the Tape: Paxos
In his "Off The Tape" segment, Cramer sat down with Charles Cascarilla, CEO of the privately held Paxos, a company trying to bridge the gap between trading gold digitally and owning the underlying commodity.
Cascarilla explained that with any commodity, you can either make it easily tradable or you can own the underlying commodity, but you can't do both. So while investors can own a gold miner or a gold ETF, if they want to own the commodity itself, they need a product like Paxos.
Cascarilla went on to explain that Paxos owns physical gold that's stored in vaults, but it makes it accessible to everyone in increments as little as one tenth of an ounce. The company also uses the latest in blockchain technology to keep costs low and make trading gold frictionless.
In his "No-Huddle Offense" segment, Cramer said buyers need to stop participating in low-quality IPOs and send a message to the investment banking world that they've had enough. Case in point: the coming IPOs of We Co. and Saudi ARAMCO.
Cramer said We Co., parent of WeWork, is desperate for money and has some of the worst corporate governance he's ever seen, which includes side deals for its CEO and bizarre metrics that confuse its accounting. The company was previously valued at $47 billion, but now expects to be valued between $10 and $12 billion.
Then there's Saudi ARAMCO, which is also mired in complexity and, after today, could be among the worst investments available. Cramer said either of these deals could sink the market when they come public, but thanks to huge fees, investment bankers just can't say no.
In the Lightning Round, Cramer was bullish on Ulta Beauty (ULTA) - Get Report , DaVita (DVA) - Get Report , McDonald's (MCD) - Get Report , Coupa Software (COUP) - Get Report and Valley National Bancorp (VLY) - Get Report .
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At the time of publication, Cramer's Action Alerts PLUS had a position in TWLO, CRM.