Okta versus Deere is the best way to understand the market

CNBC’s Jim Cramer stressed to investors on Tuesday that Wall Street is going through a sector rotation, turning away from previously high-flying growth stocks in anticipation of tighter monetary policy.

To illustrate his point, the “Mad Money” host recently referred to stock trading in the software company Okta for identity management and the agricultural giant Deere.

“Octa versus Deere is the best way to understand this market,” Cramer said. “At this point in the business cycle, the handbook says you need to go with more solid companies that make real things and generate real profits … Conceptual is out, tangible is in,”[ads1]; he added.

A year ago, Cramer said investors were willing to pay for Octa’s strong revenue growth even though the company remained unprofitable. But now money managers are reacting to high inflation readings and preparing for likely interest rate hikes from the Federal Reserve, Cramer said.

Cramer said the shift helps explain why Okta shares are down 4% in the last five days, while Deere is up 6.2% in the same stretch.

“I do not mean to choose Okta. We all know that anything can bounce back. There are literally dozens upon dozens of these valuation stocks; Okta is just among the best of them,” Cramer said. “At the moment, however, it makes it the best house in a terrible neighborhood.”

On the other hand, Cramer said he expects the market to be very forgiving of stocks such as Deere, Boeing and Honeywell. Banks, which are benefiting from higher interest rates, are also at the moment, he said.

“It’s not as simple as tech versus non-tech. There are a lot of cheap, tangible tech stocks out there,” like IBM and Hewlett Packard Enterprise, Cramer said. “Again, but these are easily valued businesses that have a John Deere-like feel, and that’s what you need.”

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