Business

Wall Street will pay attention to retailers’ inventory levels during earnings reports.
Excess merchandise has weighed on profits at Walmart, Target and other retailers.
Inventory woes are expected to drive deeper discounts this holiday season.

A clearance sale sign is seen at the Gap retail store on September 20, 2022 in Los Angeles, California.
Allison Dinner | Getty Images

As some of the nation’s largest retailers report quarterly earnings and revenue this week, Wall Street will pay close attention to another number, too — inventory levels.
Walmart, Target, Gap, Kohl’s and others are trying to sell through a glut of extra merchandise piling up in store backrooms and warehouses.

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Their quarterly filings will serve as progress reports, especially as retailers gear up for the holiday season, a time of higher foot traffic, fierce competition for consumers’ wallets and plentiful sales events. Investors want a clearer sense of how much excess stuff retailers have sold off — and how deep they may have to discount to keep merchandise moving.
“Inventory is the most important factor,” said Michael Baker, a retail analyst for equity research firm D.A. Davidson. “That’s usually not the case — usually it’s just a factor. Inventory is going to take on more meaning than the other metrics.”
Retailers are under pressure to clear out inventory and start fresh in the next fiscal year. Balancing inventory has taken on additional urgency, as economists warn of dwindling savings accounts, rising credit card debt and the risk of a recession.
“The idea is to get clean in front of an environment where sales may be a little tougher to come by,” he said.

A pandemic hangover

Retailers have dealt with a sharp turnabout over the past six months. Many of the same items that flew off shelves during the pandemic’s earlier days — such as loungewear and coffee makers — have wound up on the clearance rack.

With housing and grocery prices surging, fewer Americans are buying big-ticket and discretionary items. Inventory, which accounts for the value of goods in transit as well as those in stock, also rose due to supply chain issues.

Sudden changes in tastes “from sweatpants to swimsuits and suitcases” put companies in a tough position, said Oliver Chen, a retail analyst for Cowen.
Retailers typically place orders about six to 12 months ahead, with bulky items and home goods on the higher end of that. After seeing such strong consumer demand and coping with supply chain-related out-of-stocks, some companies placed bigger or expedited orders.
Big retailers fought so long and hard to build up inventory that they weren’t able to adjust properly when they needed to slow the influx of merchandise. “You can’t change on a dime,” Chen said.
Walmart and Target were among the retailers that shocked investors with significant jumps in inventory levels in the first quarter, which ended April 30.
Target slashed its forecast twice, once in May and again in June, saying it would cancel orders, cut prices and take other dramatic steps to clear the clutter.
Walmart’s U.S. CEO, John Furner, acknowledged at an investor day in June that the company would like to “just wish away” most of its excess inventory. He warned it would take “a couple of quarters” to get back to a healthier inventory position. A month later, the discounter cut its second-quarter and full-year profit outlook, in part due to aggressive markdowns.
Mall retailers, including Abercrombie & Fitch, American Eagle and Gap, reported similar problems. Some also cut their forecasts.

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Kohl’s swung from having too little inventory last year to having ballooning inventory in the second quarter of this year. Some of that came from beauty merchandise as it opened Sephora shops and a decision to pack and hold goods that arrived at the wrong time or weren’t selling.
Gap’s inventory got hit by a mismatch in size and assortment. At its Old Navy chain, a push to sell more plus-size items backfired with stores having too many extended sizes and too few of the sizes with higher demand.
Not all retailers have struggled with having too much stuff to sell. Best Buy cut its sales forecast for the year in July, as sales of consumer electronics such as laptops and TVs slow, but its inventory declined year over year in the second quarter.
Like its peers, Macy’s saw a shift from casual clothing and home categories to dressier apparel. It also cut its forecast, citing weakening consumer spending. Yet in recent quarters, it has largely skirted a dramatic inventory imbalance.
CEO Jeff Gennette said on an earnings call in August that the department store used data analytics to move swiftly. He said it slowed down orders for brands where it had more flexibility, as it noticed consumers pulling back on spending and heard about competitors’ inventory troubles.

Big deals, tighter margins

For shoppers, efforts to clear inventory will mean bigger bargains this holiday season. For retailers, it will mean squeezed profit margins.
Mall-based retailers and others that sell apparel, home goods and electronics are more likely to still be in a tough spot, said Neil Saunders, managing director for GlobalData Retail, a consulting firm.
Even at a much lower price, summer clothes are tough to sell in the winter, he said. So are one-and-done-type purchases that many people already made during earlier parts of the pandemic, such as a flat-screen TV or a blender, he said.
Excess inventory could downgrade the shopping experience this holiday season at some stores, too. For example, on recent trips to Kohl’s stores, he said, he had trouble maneuvering around “chockablock full” aisles.

Having too much stuff — even if on discount — could overwhelm shoppers who seek ease, speed and convenience during the busy season. It could drive them to online competitors such as Amazon.
“A lot of people may walk into stores to look around and they just might walk out again and think ‘I can’t cope with this,'” Saunders said.
Some analysts are already bracing for the inventory headaches to persist. Last week, equity research firm Evercore ISI initiated a negative tactical trading call on Target ahead of earnings, saying it expects the big-box retailer to post a miss on earnings and indicate it is still unwinding months of inventory buildup.
The majority of Target’s sales come from discretionary goods, versus Walmart, which draws most of its sales from groceries.
Still, the holidays could lend a hand for retailers still coping with bloated inventory, said Greg Melich, a retail analyst for Evercore ISI. Shoppers still plan to hit the stores and search for gifts, even if holiday forecasts are more muted.

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Ben Stokes of England celebrates victory following during the ICC Men’s T20 World Cup Final match between Pakistan and England at the Melbourne Cricket Ground on November 13, 2022 in Melbourne, Australia.
Robert Cianflone | Getty Images Sport | Getty Images

Ben Stokes starred in a final once again as England became dual white-ball world champions after overcoming Pakistan by five wickets to win the T20 World Cup at the MCG.
Jos Buttler’s side added the T20 trophy to the 50-over silverware they had lifted in dramatic style at Lord’s in 2019 and are now the first men’s team to hold both titles simultaneously.

Stokes played an instrumental role in the run chase against New Zealand three and a half years ago and was at the heart of matters once again with his unbeaten 52 from 49 balls propelling England to their target of 138 with an over to spare on a spicy pitch against a fine and fired-up Pakistan bowling attack.
England were reduced to 45-3 inside the powerplay as openers Alex Hales (1) and Buttler (26 off 17) – so destructive in the 10-wicket demolition of India in Thursday’s semi-final – and Phil Salt (10 off 9) were dismissed and the were 84-4 in the 13th over once Harry Brook (20) was brilliantly caught at long-off by Shaheen Shah Afridi.

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Shaheen injured himself taking that grab and subsequently pulled up one ball into the 16th over – with Stokes then clubbing his replacement, off-spinner Iftikhar Ahmed, for four and six off successive balls to reduce the requirement to 28 from 24 balls and England would not be denied, with the wicket of Moeen Ali (19 off 13) coming too late for Pakistan.
Stokes clinched his first international T20 half-century with the four that levelled the scores, before hauling the single through the leg-side that took England to the title and gave him redemption, if he needed it, from the 2016 T20 final when Carlos Brathwaite smashed him for four successive sixes to win the trophy for West Indies.
Sam Curran (3-12), Adil Rashid (2-22) and Chris Jordan (2-27) had earlier excelled with the ball – Rashid was outstanding in the middle overs with his wickets including Babar Azam caught and bowled – as Pakistan were restricted to 137-8 after being inserted.
Adil Rashid caught Pakistan captain Babar Azam off his own bowling as England bagged a crucial wicket at the MCG
England secured a second T20 World Cup title, after their success in the Caribbean in 2010, and a tournament victory that looked a long way off after their meek defeat to Ireland at the MCG last month.
England rallied to overpower New Zealand, edge past Sri Lanka and decimate India before seeing off Pakistan to end their opponents’ hopes of winning the T20 World Cup for a second time and of repeating their victory over England at the MCG in the 1992 50-over final.
Destiny had seemed on Pakistan’s side with this campaign largely mirroring their 1992 tournament – slow start, scraping into the semi-finals, beating New Zealand in the semis, facing England in the final – but England trumped them in Melbourne.
Curran, Rashid star with ball before Stokes completes job with bat
Curran, who ended the tournament with 13 wickets at an average of 11.38 and economy rate of 6.52, bowled Mohammad Rizwan (15) in the fifth over after Pakistan were inserted and returned during the death overs to have top-scorer Shan Masood (38 off 28) and Mohammad Nawaz (5) caught at deep midwicket.
Rashid, meanwhile, was masterful in the middle, removing Mohammad Haris (8) with his first delivery of the game and then bagging the key scalp Babar (32 off 28) when the Pakistan captain sliced a googly back to him and the bowler pouched low to his right.
Babar’s exit came at the start of the 12th over with Pakistan 84-2 and they went on lose six wickets for 47 runs.
Stokes and Jordan removed the other members of Pakistan’s top six as Stokes nicked off Iftikhar Ahmed (0) after finding some extra bounce and Jordan had Shadab Khan (20 off 14) caught at mid-off.
A chase of 138 was never going to be easy against the best bowling attacking in the tournament on a fruity pitch and so it proved as Shahen castled Hales off his pad sixth ball – the left-armer striking in his first over for the eighth time in T20 internationals – and fellow seamer Haris Rauf then dismissed Salt and Buttler.
Salt pulled to midwicket in the fourth over and Buttler slashed behind to wicketkeeper Rizwan in the sixth to give England some jitters before Stokes and Brook eased them a touch with a fourth-wicket stand of 39 from 42 balls.
Stokes would have been run out with 51 needed after slipping but the shy at the stumps was wayward and he went on to lead England to victory, with his stand of 47 from 33 balls with Moeen taking the match away from Pakistan.
What’s next?
England will remain in Australia to play a three-match one-day international series against Australia, beginning on Thursday at Adelaide before fixtures at the SCG on Saturday and MCG on November 22.
They then head to Pakistan for a three-match Test series, their first red-ball tour of the country since 2005, starting on December 1 in Rawalpindi, exclusively live on Sky Sports.

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Winter is on the way, and in war-torn Ukraine the fight against Russia appears far from over.
Moscow continues to target Ukrainian power plants and stations. Grain shipments out of Ukraine have been interrupted since Russia paused participation in a United Nations-brokered agreement that allowed a corridor in the Black Sea for cargo ships to transit. And there’s the prospect of a tactical nuclear weapon attack or even a meltdown at the Russian-occupied Zaporizhzhia nuclear power plant.”We’re seeing this is becoming a real security issue with the Russians using food as a weapon of war turning off and turning on grain supplies as a way to try to coerce and manipulate the West,” said Matthew Kroenig, acting director of the Scowcroft Center for Strategy and Security.

Europe is also planning for a long-term change in energy policy, with most countries changing from relying on Russian energy exports.
“We are already experiencing a very strong decoupling between Europe and Russia on energy,” said Simone Tagliapietra, a senior fellow at Bruegel, a Brussels-based think tank.
Watch the video above to find out more about the challenges Ukraine and Europe face this winter, and the potential solutions to these pressing problems.

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ESG Impact Events

A chaotic week for Twitter and the collapse of crypto exchange FTX are the latest examples of how the lone genius model of capitalism can lead to governance failures.
From Sam Bankman-Fried to Mark Zuckerberg, genius doesn’t mean corporate governance should be an afterthought in how companies are run, says Yale leadership guru Jeffrey Sonnenfeld.
“When they develop one of these emperor-for-life models … then you really don’t have accountability,” he told CNBC.

From the FTX bankruptcy and downfall of crypto “rock star” Sam Bankman-Fried to the chaos at Twitter, it has not been a good week for the geniuses of capitalism. Elon Musk’s abrupt and in some cases already reversed decisions since taking over the social media company back up his contention that so far his tenure “isn’t boring,” but also expose the type of corporate governance issues that are too often repeated to the detriment of shareholders.
“Without a doubt, Sam Bankman-Fried is a genius,” said Yale School of Management leadership guru Jeffrey Sonnenfeld in an interview with CNBC’s “Taking Stock” on Thursday. “But what’s hard is that somebody has to be able to put on the brakes on them and ask them questions. But when they develop one of these emperor-for-life models … then you really don’t have accountability,” Sonnenfeld said.

Few would doubt the genius of Elon Musk, or Mark Zuckerberg, for that matter, but few would put them in the same class with many companies that have failed spectacularly, though Sonnenfeld says they share the link of being allowed to operate without enough corporate oversight.
“It’s not crazy to talk about Theranos, or WeWork, Groupon, MySpace, WebMD, or Naptster – so many companies that fall off the cliff because they didn’t have proper governance, they didn’t figure out, how do you get the best of a genius?” Sonnenfeld said.
In the case of Bankman-Fried, who stepped down from his CEO role at FTX as the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should have been asking tough questions.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

But boards are often unable to manage genius, Sonnenfeld said. Zuckerberg is another example. When Meta, formerly Facebook, announced it would be shifting its focus to the metaverse last year, Sonnenfeld said his board members were essentially powerless. Meta laid off 11,000 of its employees this week and announced a hiring freeze as it has faced declining revenue and increased spending on a metaverse bet that Zuckerberg has said may not pay off for a decade.
Tesla shares have not been immune from Musk’s Twitter takeover, with the stock plummeting this week after Musk told Twitter employees on Thursday he sold Tesla stock to “save” the social network. One Wall Street analyst decided that Twitter is now a business risk to Tesla and yanked the stock from a best picks list.

Musk (though not Tesla’s founder) and Zuckerberg oversaw the creation of two trillion-dollar companies, though both have now lost that market-cap status in stock declines caused by a variety of factors — from macroeconomic conditions to sector-specific risks, a market valuation reset for high growth companies, and also leadership decisions.

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Market research shows that founders can be a financial risk to company value over time. Founder-led companies have been found to outperform those with non-founder leaders in early year, according to a study from the Harvard Business Review that examined the financial performance of more than 2,000 public businesses, but virtually no difference appears three years after the company’s IPO. After this time, the study found that founder-CEOs “actually start detracting from firm value.”
Major players in Elon Musk’s Twitter deal, including Fidelity Investments, Brookfield Asset Management and former Twitter CEO and co-founder Jack Dorsey, did not take a seat on the company’s board or have a voice throughout the transaction, Sonnenfeld said, which gave the deal no oversight. Musk is now splitting his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.
Companies led by lone geniuses need strong governance first and foremost. Sonnenfeld says having built-in checks and balances and a board that has field expertise as well as the ability to watch out for mission creep is critical to allowing these businesses to function with less risk of costly blunders.
Tesla and Meta governance scores within ESG rankings have long reflected this risk.
That doesn’t mean the market doesn’t need geniuses.
“Sure, we’re better off with Elon Musk in this world as we are better off with Mark Zuckerberg,” Sonnenfeld said. “But they can’t be alone.”
Through the recent issues, these under-fire leaders have been critical of themselves.
FTX’s Sam Bankman-Fried tweeted Thursday morning that he is “sorry,” admitting that he “f—ed up” and “should have done better.”
Zuckerberg said of the mass layoffs at Meta in a statement equal parts apology and unintended restatement of the governance problem, “I take full responsibility for this decision. I’m the founder and CEO, I’m responsible for the health of our company, for our direction, and for deciding how we execute that, including things like this, and this was ultimately my call.”
Musk tweeted, “Please note that Twitter will do lots of dumb things in coming months.”
But whether an apology or an admission from genius that it too can be dumb on occasion, Sonnenfeld says these leaders would be better off letting others do the criticizing — much sooner, and much more often.
“They have to be managed, they have to be guided and they have to have a board that can help get the best out of themselves and not let them develop this imperial sense of invincibility,” he said. More

Carvana’s rapid growth during the coronavirus pandemic has since turned into a nightmare for investors amid rising interest rates, inflation and self-inflicted wounds.
Shares of Carvana have fallen from an all-time high of nearly $377 per share to as little as $6.50 per share this week – a 98% decline.
It has been a steady run of bad news and financial results since the stock’s peak, leading to concerns from investors about the company’s long-term trajectory.

Ernie Garcia, CEO, Carvana
Scott Mlyn | CNBC

DETROIT – Last year, Carvana CEO and cofounder Ernie Garcia went on a victory lap.
He touted the company’s “landmark” second-quarter results on Aug. 5, 2021 that included the used car retailer’s first-ever quarterly net profit. He then reminisced about the rapid growth of “a bunch of ambitious kids with a shocking amount to learn” into a Fortune 500 company.

It’s now apparent the company’s executives still have more to learn. Carvana’s fairytale rise has since turned into a nightmare for investors amid rising interest rates, inflation and self-inflicted wounds.
Since Garcia’s comments last year, shares of the company have fallen from an all-time high of nearly $377 per share, notched in August of last year after that standout quarter, to as little as $6.50 per share this week – a 98% decline. Carvana has plummeted from a market cap of $60 billion to $2.2 billion after a small rally to end this week.
The stock gained more than 30% on Thursday, followed by a 19% increase to $11.88 per share Friday amid a broader market rally and possible short-seller squeeze.
But it’s been a steady run of bad news and financial results since the stock’s peak, stirring concerns among investors about the company’s long-term trajectory. It also has little cash on hand and $6.3 billion in debt, including $5.7 billion in senior notes.

Carvana has consistently borrowed money to cover its losses and growth initiatives, including an all-cash $2.2 billion acquisition earlier this year of ADESA’s U.S. physical auction business from KAR Global.

“We believe CVNA is far from out of the woods, as even when the industry bottoms out, we don’t see a V-shaped recovery,” JPMorgan analyst Rajat Gupta wrote in a Tuesday note to investors. The firm cut its projections for earnings and free cash flow for the company.
Morgan Stanley last week pulled its rating and price target for the stock. Analyst Adam Jonas cited deterioration in the used car market and a volatile funding environment for the change.

Management missteps

Carvana grew exponentially during the coronavirus pandemic, as shoppers shifted to online purchasing rather than visiting a dealership, with the promise of hassle-free selling and purchasing of used vehicles at a customer’s home.
But Carvana did not have enough vehicles to meet the surge in consumer demand or the facilities and employees to process the vehicles it did have in stock. That led Carvana to purchase ADESA and a record number of vehicles amid sky-high prices as demand slowed amid rising interest rates and recessionary fears.
“We built for more than showed up,” Garcia said during an earnings call April 20 – sending the stock down by 37% through the following week.  
During its first-quarter earnings report, the company was criticized for spending too much on marketing, which included a lackluster 30-second Super Bowl ad, and failing to prepare for a potential slowdown or downturn in sales.

Debt

And then there’s Carvana’s debt.
The company’s bonds touched all-time lows this week, as it burns cash and faces rising borrowing costs.
The Wall Street Journal reported Wednesday that the company’s long-term bonds have declined to distressed levels, with some now trading as low as 33 cents on the dollar. The yield on their 10.25% notes was over 30% as of Tuesday, according to MarketAxess, a sign that Carvana would struggle to borrow from bond markets presently.
Morgan Stanley cited the company’s debt and uncertain funding outlook in pulling its rating and price target for the stock. Jonas said “a deterioration in the used car market combined with a volatile interest rate/funding environment” made for a “material risk” to the company.
Jonas issued a new base case range for Carvana of between $1 per share and $40 per share over the next 12 months.

Pricing pressures

The used car market is on pace to finish the year down more than 12% from the 40.6 million used vehicles sold in 2021, according to mid-October estimates from Cox Automotive. Carvana’s sales through the third quarter of this year were up 4% over 2021, but were far less profitable than a year earlier and were lower on a quarter-over-quarter basis.
Carvana’s third-quarter sales declined 8% from a year earlier, while profits per vehicle sold plummeted 25% to $3,500. CEO Garcia described the end of the third quarter as the “most unaffordable point ever” for customers who finance a vehicle purchase.
“Carvana successfully disrupted the auto industry with a proven ecommerce model serving millions of satisfied customers, and although the current environment and market has drawn attention to the near-term, we continued to gain market share in Q3, and we remain focused on our plan to drive to profitability, while making the best car buying and selling experience available even better,” a company spokesperson said in a statement.

The declines have come amid falling wholesale prices of new vehicles. The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has fallen by 15.4% this year through October after peaking in January, including a 2.2% decline from September to October.
Retail prices traditionally follow changes in wholesale. That’s good news for potential car buyers, however not great for companies such as Carvana that purchased the vehicles at record highs and are now trying to sell them at a profit.
Used vehicle prices have so far remained steady, but that may not last long, as the wholesale costs continue to decline.
“They’re not wanting to sell at trough prices,” said Chris Frey, senior industry insights manager at Cox Automotive. “That’s why we’re not seeing the prices decline so much at retail.”

Affordability

Frey noted that vehicle affordability continues to decline, with auto loan rates reaching a 15-year high even though prices declined slightly. The average used listing price for a used vehicle is stabilizing but remains near record highs of more than $28,200, according to Cox Automotive.
“We have been seeing a slowdown effect in retail sales, and a lot of it has to do with affordability,” Frey said. “The affordability aspect, married with these higher prices is starting to have an effect on sales rates.”
The competition also is catching up to Carvana. During the coronavirus pandemic, franchised vehicle dealers such as AutoNation were forced to begin selling vehicles online while showrooms shuttered and consumers stayed away from dealerships. Carvana’s traditional rivals began delivering on its same promise of hassle-free online car purchasing.
“They’ve taken a lot, almost all, of the air out of the balloon for Carvana,” Frey said.  
–CNBC’s Michael Bloom contributed to this report.

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HHS did not alert states of any intent to lift the public health emergency by a Friday notification deadline, which means it will remain place at least through mid January.
The public health emergency, first declared in January 2020 and renewed every 90 days since, has had a vast impact on the U.S. health-care system.
The declaration has dramatically expanded public health insurance through Medicaid and the Children’s Health Insurance Program.

Secretary of Health and Human Services Xavier Becerra answers questions during a Senate Health, Education, Labor, and Pensions Committee hearing to discuss reopening schools during the coronavirus disease (COVID-19) at Capitol Hill in Washington, D.C., September 30, 2021.
Greg Nash | Pool | Reuters

The U.S. Covid public health emergency will remain in place past Jan. 11 after the federal government did not notify states or health-care provides on Friday of any intent to lift the declaration.
Health and Human Services Secretary Secretary Xavier Becerra has promised to give stakeholders 60 days notice before lifting the emergency declaration so they can prepare for a return to normal operations. In October, HHS extended the public health emergency until Jan. 11.

HHS did not provide a 60-day notice on Friday, which was the deadline to alert states and health-care providers if the federal government planned to lift the declaration on Jan. 11, according to a Health and Human Services spokesperson. Since HHS did not provide notification, the emergency will remain in place for at least another 60 days until mid January.
Public health officials are expecting another Covid surge this winter as people gather more indoors where the virus spreads easier. The future also remains uncertain as more immune evasive omicron subvariants become dominant in the U.S.
How the U.S. fares against Covid this fall and winter will help determine whether the emergency needs to be renewed again moving forward, Becerra told reporters in October.
The public health emergency, first declared in January 2020 and renewed every 90 days since, has had a vast impact on the U.S. health-care system. The declaration has dramatically expanded public health insurance through Medicaid and the Children’s Health Insurance Program. Enrollment in these programs increased 26% during the pandemic to a record of more than 89 million people as of June.
HHS has estimated that as many as 15 million people could lose Medicaid or CHIP once the programs return to normal operations.

The emergency declaration has also given hospitals and other health-care providers more flexibility in how they operate.
Correction: HHS clarified that public health emergency remains in place for at least another 60 days, which is mid January.

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Monday – Friday, 6:00 – 7:00 PM ET

It’s that time again! “Mad Money” host Jim Cramer rings the lightning round bell, which means he’s giving his answers to callers’ stock questions at rapid speed.

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Jim Cramer’s Guide to Investing

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Monday – Friday, 6:00 – 7:00 PM ET

CNBC’s Jim Cramer on Friday offered a list of stock picks for investors who are bullish on cloud computing but cautioned that he believes there’s more pain to come.
“I recommend using this incredible rebound actually as a rare opportunity to sell the weaker cloud stocks into strength,” he said.

CNBC’s Jim Cramer on Friday offered a list of stock picks for investors who are bullish on cloud computing but cautioned that he believes there’s more pain to come.
“I recommend using this incredible rebound actually as a rare opportunity to sell the weaker cloud stocks into strength,” he said. “That said, some of them might be worth keeping, but only the highest quality names.”

Here is his list of keepers:

CrowdStrike
Datadog
ServiceNow

Honorable mentions, which he likes but doesn’t necessarily recommend buying, include Salesforce and Workday.
To come up with his list, Cramer first looked at the WisdomTree Cloud Computing Fund, an ETF that soared over 13% on Thursday after the October consumer price index came in lighter than expected.
Cramer first narrowed the list of 75 stocks in the exchange-traded fund by eliminating companies with these qualities:

Has a market capitalization below $1 billion
Is expected to be unprofitable next year
Is only tangentially related to the cloud
Doesn’t pass the rule of 40 test, meaning 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 maintained that while he likes the stocks he picked, investors should take the chance to exit their cloud stocks while they’re up. “If you were trapped in these things, this is giving you a chance to get out,” he said.
Disclaimer: Cramer’s Charitable Trust owns shares of Salesforce.

Jim Cramer’s Guide to Investing

Click here to download Jim Cramer’s Guide to Investing at no cost to help you build long-term wealth and invest smarter.

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