Cloud stocks have been crushed. Here's how Jim Cramer would invest in a potential rebound

CNBC's Jim Cramer on Monday detailed an investment strategy for a group of cloud software stocks, after the cohort has been hit hard by a sector rotation on Wall Street.

The “Mad Money” host and his team compiled 50 stocks in the cloud space, from heavyweights such as Salesforce to maturing players like Okta and recent IPOs such as AppLovin and UiPath. All but one of the analyzed companies was down more than 10% from their highs, as of Friday's close. The average decline at that time was 33%, Cramer said.

Cramer said the recent sell-off is reminiscent of a period in late 2018, which turned out to be a good buying opportunity for many cloud companies. However, he stressed it's not clear when this period of weakness will subside and more pain could be ahead.

For that reason, Cramer said investors who want to try capitalizing on the decline should focus their attention, for now, on those with “reasonable valuations.”

“Eighteen of the 50 names in our cloud list have single-digit price to sales ratios … which I have no problem with,” he said. “That includes Cramer-fave Salesforce.com, which is owned by my charitable trust, and fellow cloud king VMWare.”

New Relic, which makes software that helps companies track applications to identify and resolve bugs, is another stock to consider at this moment, Cramer said. The stock had been a turnaround story prior to the late-year sell-off, he said.

“In short, if you want to start picking among the rubble in the cheap cloud stocks, well, these have already come down enough to be worth buying very gradually on the way down,” Cramer said.  

Additional stocks appear reasonably valued when considering 2023 sales estimates, Cramer said, which is fair to look at “because in a month, 2023 will be next year.” Of those eight companies, Cramer said Workday, Five9 and Twilio are “the ones I like.”

Sign up now for the CNBC Investing Club to follow Jim Cramer's every move in the market. Disclosure: Cramer's charitable trust owns shares of Salesforce and

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