One of the hardest things for an active investor to do is do nothing. But as Jim Cramer shared on Tuesday’s morning meeting, that’s exactly what investors should do on a day like Tuesday. As active investors, we always want to believe we are in control. But the reality is that you can’t control where the stock price goes next. All we can control is our buy and sell decisions and our positioning, including the size of specific stocks and cash holdings in our portfolio. Anyone who thinks they can control the next move of a stock is guilty of the “illusion of control” bias. In the investment world, this is an area where investors believe they can actually control or fully predict market outcomes. This often leads to overconfidence, which leads to overtrading, insufficient diversification, and all the bad things that come with it. The reality is that there is still war in the Middle East, and no matter what anyone says, certainty will fade once missiles and drones start flying. That’s a problem for investors. It is possible to model good news and bad news. But uncertainty has a wider range of consequences, including outcomes that no one had even considered modeling before. In other words, it increases tail risk, or the risk that a low-probability, high-consequence event will occur. That’s why we believe the best course of action on Tuesday is to do nothing, given mixed messages from the White House about war and Iran on its heels. That, at least, is the club’s approach based on current facts and the current market atmosphere. If there are significant mood swings, the desire to sit on your hands may change. Monday’s dramatic reversal related to comments President Donald Trump made on CBS News showed how quickly attitudes can change. Therefore, we understand that the placement of members may perhaps not reflect ours and that some members may be looking to take some action. During Tuesday morning’s meeting, Jim brought up some names that he thought would be interesting if, based on your personal position, sitting on your hands doesn’t seem like the right option. Chief among those opportunities is CrowdStrike, the cybersecurity provider that was unfairly caught up in the Software-as-a-Service apocalypse that hit Wall Street in January and February. Additionally, Morgan Stanley on Tuesday upgraded CrowdStrike to a buy-equivalent rating with a “Top Pick” designation. In recent weeks, we have consistently argued that concerns about AI disruption in cybersecurity are overblown and that it is fanciful to think that companies will use large-scale language models to develop in-house security tools on par with CrowdStrike. But the Iran war gave even more reason to include this name. CRWD 1Y Mountain CrowdStrike’s stock price performance over the past 12 months. Over the past 24 hours, oil prices have thankfully recovered significantly from their highs. However, trading remains volatile and prices are still significantly higher than their levels at the beginning of the year. The situation in the Strait of Hormuz remains uncertain, and supply disruptions remain a possibility. At the same time, President Trump said the U.S. military was making “significant progress” toward achieving its goals and threatening Iran for blocking traffic in the straits. However, Iran has said it does not want to talk about a ceasefire and has elected Mojtaba Khamenei to replace his late father as supreme leader. Let’s talk a lot to make sense. So what should investors do against this backdrop, even though the market is still within 5 percentage points of its all-time high? Consider these three questions: What has already been hit harder than the market? What will not be harmed, or even benefited, by the escalation of the conflict in Iran? What products and services will continue to be in high demand, even if prices rise? CrowdStrike checks all three boxes. Let’s look at them one by one. Software stocks have clearly been hit harder than the market. Investors are rightly concerned about long-term disruption in certain areas of software, so a decline in areas like graphic design, for example, makes sense directionally. However, we believe this is not the case when it comes to cybersecurity. CrowdStrike stock fell from $469 a share to a closing low of $350 in late February, but the recovery is underway. The stock traded around $438 on Tuesday. The all-time high closing price was $557.53 per share on November 10th. Cybersecurity also applies to the second question. The war in Iran is not only being fought on the ground, in the air, and in the waters around Iran. It is no exaggeration to say that a shadow war is being waged in the digital theater as well. In CrowdStrike CEO George Kurtz’s own words: “We’re certainly seeing activity from Iran, and any time you see geopolitical tensions rising, which obviously is the case, you’re going to see cyber activity connected to movement activity,” Kurtz told Jim on “Mad Money” last week. “And when you think about the activities and actions that governments are taking, it’s not just government-to-government. You think about the transportation sector, the shipping sector, energy, telecommunications. These are all cyber targets for the Iranians, and again, we’re seeing an increase in activity in these areas.” Even if the missiles stop flying, this problem may not go away, especially if the Iranian regime remains in power with a weakened military and few other means of retaliation. Now for the third question. Is demand for CrowdStrike’s products and services resilient, even at higher prices? We argue that the answer is a resounding yes. Rising geopolitical tensions aside, companies already consider spending on cybersecurity essential, and the rapid adoption of artificial intelligence is proving that importance. CrowdStrike’s earnings report last week was a stark reminder that AI is a tailwind for the company, not a headwind. No matter what the bears would have you believe during the “SaaS apocalypse.” If oil prices remain elevated compared to the $60 range earlier this year, companies that rely on oil prices as a key input may have to look for cost offsets elsewhere. But I doubt they will look at cyber budgets as a place to cut. You don’t just turn your subscription off and turn it back on later with the flip of a switch. The decision to change providers takes time, and it takes even more time to implement it. Businesses cannot simply sacrifice cybersecurity to save costs. Not only are cyber solutions deeply embedded in the fabric of digital infrastructure, they are also highly risky. Is the world ending because you missed a customer service request due to a software vendor change? Probably not. When it comes to cyber, businesses can’t afford to miss anything. The financial and reputational costs would be significant. In fact, CrowdStrike appears to be actually winning new business, based on the aforementioned Morgan Stanley upgrade. Analysts said in a note to clients that the company’s industry research points to an “increasing win rate” for the company’s basic endpoint security protections and continued adoption of the platform to access multiple different security tools. Conclusion In situations of extreme uncertainty, sometimes the wisest thing a long-term investor can do is do nothing. But if sitting on your hands isn’t an option, you can at least give yourself the best chance of profit by focusing on the long term, considering what trends will remain intact no matter where the uncertainty takes you, and buying with a margin of safety. CrowdStrike meets that criteria. The margin of safety is already there, thanks to a terrible start to the year. Cyber demand was already on the rise due to the spread of AI, but the Iran war has caused it to rise again. (Jim Cramer’s Charitable Trust is a long CRWD. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
