We itching to buy the dip in our cyber stocks because they shouldn't be down with the rest

CNBC

17 hours ago

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: The S & P 500 gave up its early gains and fell into the red Thursday. Rallies in mega-cap names like Apple and Nvidia weren't enough to keep the index up. After an initial burst around the opening on news that semiconductor companies may avoid harsh tariffs if they pledge big investments in the United States, stocks slid as the session progressed. More economically sensitive groups – like financials and consumer discretionary — fell, while more resistant sectors — like utilities and staples — outperformed. We're still less than one week removed from last Friday's weak jobs report, and the market is still trying to figure out how sturdy the economy is. Cyber selling: The cybersecurity group was getting crushed in reaction to Fortinet 's earnings report. Although the quarter was generally better than expected and management raised its full-year billings outlook, the stock plunged 25%, and several analysts downgraded their rating. What shocked the market was management's comments that the highly anticipated firewall refresh cycle — which means customers replacing and upgrading their equipment — was already 40% to 50% complete. Analysts thought a lot more upside was on the way, which is why several downgraded on the change in thesis. When a stock in a specific group plunges this much in a single session, it brings down its peers, even if the others have nothing to do with the reason why it's down. A lot of this has to do with the so-called ETFization of stocks, which is our way of explaining how the rise in trading of sector-based exchange-traded funds can distort individual stocks. For example, CrowdStrike dropped 5% on Thursday despite being cloud-native and not selling traditional firewalls. This does not make sense to us, and we're warming up to the idea of buying back shares that we sold in the $480s back in June. As for Palo Alto Networks , its stock was getting hit again on Thursday despite analysts at Morgan Stanley writing up a good note detailing the accretion of the CyberArk deal. Palo Alto does sell traditional firewalls, but never hyped up a refresh cycle as an important driver of its growth. Management's view of the traditional firewall market was always one of low but stable growth. Funny enough, CEO Nikesh Arora said some eight months ago on "Mad Money" that refresh cycles at other industry peers create opportunities for his customers to replace their old firewalls and consolidate on Palo Alto's platform. We are still interested in adding more Palo Alto when our trading restrictions allow. Up Next: Texas Roadhouse reports earnings after Thursday's closing bell. Two things we'll be watching are comparable restaurant sales and the impact rising beef prices have on margins. Other companies scheduled to report are Trade Desk, Take-Two Interactive, Wynn Resorts, Pinterest, and Block. There are no major earnings reports or economic releases scheduled for Friday. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.