Yesterday’s red-hot software stocks are far from their highs, but it’s still too early to hit a low in cloud games, CNBC’s Jim Cramer said Monday.
“A lot of damage has been done, but given how much stock went into this sell-off, many of them could experience a lot more drawbacks before they look tempting.”Bad money“Host said.
On a list of 75 technology stocks, Cramer found they averaged 37% below their highs. Despite the decline, their valuations remain elevated relative to the corporate outlook.
Meanwhile, bond yields have risen steadily, making tech stocks and their future earnings potential less attractive. The return on the benchmark 10 year treasury note has risen from less than 1% to 1.65% since December.
“Without a sharp drop in interest rates, I think the cloud cohort will continue to struggle and there is no rush to buy until we get lower levels for most, if not all of these stocks,” Cramer said.
However, some software stocks are approaching enticing levels. Using the “rule of 40,” which measures the tradeoff between a company’s profitability and growth rate, Cramer spotted a handful of names among the 75 stocks worth watching.
Coinbase, square, Carvana, Etsy, Coupang and Foreclosure All meet the standard and trade below a sales multiple of 10, Cramer said. He also pointed out Roblox, service now, To confirm and RingCentral as fascinating possibilities.
“I think you can take a small position here but leave room to buy more at lower levels because I wouldn’t be surprised if there was more pain in store,” he said.
Disclosure: Cramer’s charitable foundation owns shares in Salesforce.