Here are 3 reasons why CrowdStrike is the kind of stock to buy during the Iran war
One of the most difficult things an active investor can do is, well, nothing. Yet, that is exactly what investors should likely be doing on a day like Tuesday, as Jim Cramer shared during Tuesday’s Morning Meeting. As active investors, we always want to believe we’re in control. However, the reality is that we cannot control where a stock goes next. All we can control is our buy and sell decisions, along with our positioning — the specific stocks in the portfolio and the size of our cash holdings. Anyone thinking they can control a stock’s next move is guilty of the “illusion of control” bias. In the world of investing, this is where investors think they can actually control or perfectly predict market outcomes. This often results in overconfidence, leading to overtrading, poor diversification, and all the things, usually bad, that come with that. The reality is that a war is still raging in the Middle East, and no matter what anyone says, when the missiles and drones start flying, the level of certainty fades. That is a problem for investors. It’s possible to model good news and bad news. But uncertainty leads to a wider range of outcomes, including things that nobody ever thought to even model. Put another way, tail risk — the risk of low probability but highly consequential events — increases. With some mixed messaging out of the White House on the war and Iran digging in its heels, that’s why we believe “nothing” is the best move we can make on Tuesday. That is, at least, our approach at the Club based on the current facts and the current mood of the market. If there’s a major mood swing, our desire to sit on our hands may change. Monday’s major reversal, tied to comments President Donald Trump made to CBS News, showed how quickly attitudes can change. Accordingly, we understand that member positioning likely does not reflect our own, and some may be looking to make a move or two. During Tuesday’s Morning Meeting , Jim called out a few names that he thinks are interesting if sitting on your hands doesn’t feel like the correct option based on personal positioning. Chief among those opportunities is CrowdStrike , the cybersecurity provider that was wrongfully caught up in the software-as-a-service apocalypse that swept through Wall Street in January and February. Additionally, Morgan Stanley upgraded CrowdStrike to a buy-equivalent rating Tuesday with a “top pick” designation. In recent weeks, we’ve consistently argued that the AI disruption fears surrounding cybersecurity are overblown and that it was fanciful to believe companies were going to use large language models to develop in-house security tools on par with CrowdStrike. With the war in Iran, however, we find even more reason to be in the name. CRWD 1Y mountain CrowdStrike’s stock performance over the past 12 months. Over the past 24 hours, oil has thankfully come well off its highs. But the trading remains volatile, and prices are still way up from where they were at the start of the year. The conditions in the Strait of Hormuz remain uncertain, keeping alive of the prospect of supply disruptions. At the same time, Trump said the U.S. military is making “major strides” toward completing its objective and has threatened Iran over impeding traffic in the Strait. However, Iran has said it doesn’t want to talk about a ceasefire, and it selected Mojtaba Khamenei to replace his deceased father as supreme leader. Talk about a lot to make sense of. So, what’s an investor to do against a backdrop like that — all while the market is still within 5 percentage points of all-time highs? Consider these three questions: What has already been hit more than the market? What can’t be hurt, or may even benefit, from the escalating conflict in Iran? What products and services will continue to be in high demand even if they get more expensive? CrowdStrike checks all three boxes. Let’s take them one by one. Software stocks have clearly been hit more than the market. In certain areas of software, investors are justified to be worried about long-term disruption, so the sell-off in areas like, say, graphic design made sense directionally. We do not think that is the case for cybersecurity, though. CrowdStrike shares fell from $469 apiece all the way to $350 at their closing low in late February, though a recovery is underway. The stock traded around $438 on Tuesday. Its all-time closing high came on Nov. 10 at $557.53 a share. Cybersecurity also fits the bill for the second question. The war in Iran is not just being waged on the ground, in the air and on the waters surrounding Iran. It’s safe to say a shadow war is also being waged in the digital theater — take it from CrowdStrike CEO George Kurtz himself. “We’re certainly seeing activity out of Iran, and whenever you see geopolitical tensions rise, which obviously they have been, you’re going to see cyber activity connected to kinetic activity,” Kurtz told Jim on “Mad Money” last week. “And, when you think about the activity and the actions that the government is taking, it’s not just government on government. You can think about the transports sector, this shipping sector, energy, telecommunications —these are all cyber targets for the Iranians and again, we’ve seen increased activity in those areas.” That may not go away when the missiles stop flying, especially if the Iranian regime remains in control with few other means of retaliation due to weakened military capabilities. Now, onto the third question: Will the demand for CrowdStrike’s products and services be resilient, even at higher prices? We’d argue the answer is a resounding yes. Putting heightened geopolitical tensions aside, companies already viewed spending on cybersecurity as essential — and the rapid adoption of artificial intelligence is validating its importance. CrowdStrike’s earnings report last week drove home that AI is a tailwind, not a headwind for the company. No matter what the bears would’ve had you believe during the “SaaS Apocalypse.” If the price of oil stays elevated relative to where it was in the $60s earlier this year, companies that rely on that as a critical input may need to look for cost offsets somewhere. But we don’t think they’ll look at their cyber budgets as a place to cut back. You aren’t turning your subscriptions off and then back on again later with a simple flick of a switch. It takes time to decide to switch providers and even more time to implement it. Companies can’t simply trade down on cybersecurity to save some money. Not only are cyber solutions deeply woven into the fabric of their digital infrastructure, but the stakes are also just too high. Is the world over because you missed a customer service request due to a change in software vendors? Probably not. When it comes to cyber, companies can’t afford to miss anything — the financial and reputationally costs would be immense. If anything, CrowdStrike actually seems to be winning new business, according to the aforementioned Morgan Stanley upgrade. In its note to clients, analysts said their industry checks point to “improving win rates” for its bread-and-butter endpoint security protection , along with continued adoption of its platform to access multiple different security tools. Bottom line In moments where uncertainty reigns supreme, sometimes the smartest thing a long-term investor can do is nothing. However, if sitting on your hands just isn’t an option, then you can at least give yourself the best odds of making money by focusing on the long term and thinking about what trends remain intact no matter where the uncertainty takes us, and buying with a margin of safety. CrowdStrike meets that criteria. The margin of safety is already there thanks to this year’s abysmal start. Demand for cyber had already strengthened thanks to AI proliferation, and increased again on the back of the Iran war. (Jim Cramer’s Charitable Trust is long CRWD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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