We’re buying more of this cyber stock as we wait for it to leave the penalty box
We are buying 25 shares of Palo Alto Networks at roughly $266.16. Following the trade, Jim Cramer’s Charitable Trust will own 300 shares of PANW, increasing its weighting to 2.5% from 2.28%. The stock of this cybersecurity leader is down about 10% from our last buy in February, and we view this as a solid next level to buy more. It’s a good example of how to buy using wide scales when a stock’s momentum is going the other way. Palo Alto flipped from one of the best gainers in the S & P 500 in 2024, after rallying 87% in 2023, to one of the worst in the index when the stock sold off on a disappointing and confusing earnings report . That included an aggressive change in the company’s go-to-market strategy — from selling services a la carte to bundling them together, or “platformization” — and puzzling comments from management about customer spending fatigue. Shares fell 28% the next day from $366 to about $262, which is only about $4 higher than where it is currently. While we expect shares of Palo Alto to remain in the market’s penalty box until it proves this new strategy is working, we felt better about the story after CEO Nikesh Arora cleared the air last month on Mad Money . Specifically, Arora said he has been “very excited” about the response he has received from customers about the platformization change. “For the first time, I have inbound calls from customers saying how can I take a bunch of my legacy stuff and move faster towards a social platform, and by the way, that’s not just because of platformization. I think the hacking activity continues to increase” Arora explained. That’s the key to this platformization strategy. While it comes with some freebies and new promotions that will slow its revenue and billings growth rates for the next 18 months or so, it should lead to significant market share gains, larger deals, and longer-duration contracts. In addition, Arora clarified his comment about spending fatigue, explaining that the challenge customers are facing is how to get the most value in cybersecurity in an increasingly elevated threat environment. “There’s no more fatigue when it comes to people figuring out what to do. There’s never been fatigue in getting their cybersecurity to a better place, Arora said. “There was a challenge in getting maximum value and that’s what I’m addressing. Notice I changed from fatigue to maximum value.” This is what platformization hopes to solve. The “fatigue” comment was misconstrued and was never about customers pulling back on spending. Because if they do, they risk experiencing a devastating hack and interruption like the one UnitedHealth Group is still working through months later. (Jim Cramer’s Charitable Trust is long PANW. 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. 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.
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