We recently published a list of Jim Cramer Thinks These 10 Stocks Deserve Your Attention. In this article, we are going to take a look at where Salesforce.com Inc. (NYSE:CRM) stands against other stocks that Jim Cramer thinks deserve attention.
In a recent episode of Mad Money, Jim Cramer advised investors to hold off on selling stocks, anticipating a rebound once the market’s downturn ended. This strategy proved effective as the average investor saw gains, with the Dow rising by 484 points or 1.16%, and the NASDAQ also climbing by 1.16%. This performance suggests that selling during Friday’s decline was not the best move.
“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”
The previous week was challenging for economically sensitive stocks and tech stocks, despite the August employment report showing modest growth and a downward revision for July. The recent report seemed favorable for those hoping for Federal Reserve rate cuts, as it presented a balanced scenario of neither too strong nor too weak. Nonetheless, Wall Street reacted negatively, with investors moving away from cyclical stocks in favor of recession-proof sectors like consumer goods and pharmaceuticals. Industrials and semiconductors were particularly affected.
Jim Cramer observed that on Monday, recession-proof stocks such as pharmaceuticals, drug wholesalers, and medical devices continued to perform strongly. However, this trend is concerning as these stocks have surged significantly and might be due for a correction.
“Recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”
According to Cramer, historically, when the Federal Reserve is about to cut rates, it’s a signal to shift investment strategies. With the Fed moving towards easing and a rate cut expected next week, Cramer suggests it’s time to reconsider holding recession-proof stocks. Instead, investors should look at more cyclical companies that could benefit from economic stimulation. While investing in cyclical stocks during a downturn can be challenging, anticipating a positive impact from the Fed’s rate cuts could make these stocks attractive.
“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”
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Salesforce.com Inc. (NYSE:CRM)
Number of Hedge Fund Investors: 117
Jim Cramer noted that Citi analysts are not impressed with Salesforce.com Inc. (NYSE:CRM)’s $1.9 billion acquisition of the data security startup Own. While the analysts acknowledge that the all-cash deal appears sensible as it helps minimize dilution for existing shareholders, they also hint that it might suggest Salesforce.com Inc. (NYSE:CRM)’s data analytics application still needs improvement.
“Salesforce’s $1.9 billion acquisition of data security startup Own does not wow analysts at Citi. While they said the all-cash deal looks responsible given Salesforce’s efforts to reduce dilution to existing shareholders, they also suggested it could indicate its data analytics application is still “a work in progress.” Citi’s neutral view on the deal echoes the market’s view on enterprise software overall. Not a much-loved group right now.”
In Q2 FY2024, Salesforce.com Inc. (NYSE:CRM) reported earnings per share (EPS) of $2.12, exceeding the $1.90 estimate, and revenue rose 11% year-over-year to $8.6 billion. This growth is driven by its cloud services and new AI initiatives, including the Agentforce AI platform. Salesforce.com Inc. (NYSE:CRM) also achieved a record operating margin of 33.7% and raised its full-year guidance, strengthening its position as a leader in AI-driven CRM solutions.
Analysts have increased their price targets for Salesforce.com Inc. (NYSE:CRM), ranging from $265 to $350, indicating a potential upside of 20-40% from current levels. With ongoing investments in AI, including its integration of Einstein and Slack, and favorable market conditions, Salesforce.com Inc. (NYSE:CRM) offers an attractive long-term investment opportunity.
Ithaka US Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) is the largest pure-play cloud software company, holding a leading market share in customer relationship management applications and a top-five market share position in the company’s other clouds (Marketing, Service, Platform, Analytics, Integration, and Commerce). The company’s software subscription term-license model differs from the traditional perpetual-license software model in two respects: (1) the software is hosted on centralized servers and delivered over the internet, as opposed to traditional enterprise software that is loaded directly onto customers’ hard drives or servers; and (2) the revenue model is subscription-based, typically charging monthly fees per user as opposed to charging one-time licensing fees. The stock’s weak relative performance followed its fiscal first quarter earnings announcement, where the company missed top-line and cRPO (current remaining performance obligations) estimates while also issuing weak forward guidance.”
Overall, CRM ranks 3rd on our list of Jim Cramer Thinks These 10 Stocks Deserve Your Attention. While we acknowledge the potential of CRM, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
