Okta versus Deere is the best way to understand the market

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

To illustrate his point, the “Mad Money” host pointed to recent trading in shares of identity management software firm Okta and agriculture giant Deere.

“Okta versus Deere is the best way to understand this market,” Cramer said. ‘”At this point in the business cycle, the playbook says you have to go with more tangible companies that make real things and generate real profits. … Conceptual is out, tangible is in,” he added.

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

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

“I don’t mean to pick on Okta. We all know anything can bounce. There are literally dozens upon dozens of these nosebleed valuation stocks; Okta’s just among the best of them,” Cramer said. “At the moment, though, that makes it the best house in an awful neighborhood.”

By contrast, Cramer said he expects the market to be very forgiving toward stocks such as Deere, Boeing and Honeywell. Banks, which benefit from higher interest rates, are also in favor at the moment, he said.

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

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