Jim Cramer: Take some profits in 'red hot' tech stocks like Cloudflare and Zoom

"Mad Money" host Jim Cramer advised investors to take profits in some "white hot" technology companies such as Zoom Video Communications and Cloudflare. Subscribe to CNBC PRO for access to investor and analyst insights:

CNBC’s Jim Cramer on Monday advised investors to take some profits in high-flying technology stocks that have been major winners during the coronavirus pandemic, raising the specter of valuation concerns.

“Some of these red-hot growth names are absolutely worth owning into this weakness, although if you’re up huge, remember it is a sin to let a gain turn into a loss,” the “Mad Money” host said. “I don’t blame you for wanting to hang on, even if it is for dear life.”

Some of the stocks worth owning include Zoom Video Communications and insurance company Lemonade, according to Cramer, who analyzed 15 stocks that trade at more than 30 times next year’s sales estimates.

That level represents a “nosebleed valuation,” Cramer said. “Back at my old hedge fund, we used to call these high-flyers ‘red hots.’ ... It means you can make a lot of money if you time it right, but if you get it wrong, you’re going to get singed, if not burned.”

Datadog, Snowflake, JFrog, Shopify and BigCommerce are among the “red hots” trading at more than 30 times sales estimates for 2021, per Cramer’s list.

Cramer acknowledged the desire to own some of the stocks and overlook valuation worries due to their growth rates in a world where technology adoption has been accelerated by the pandemic. Zoom shares, which have risen more than 700% in 2020, typify the relationship between current price and potential, Cramer said.

“Sure, it trades at 52 times next year’s sales, but it’s also got a nearly 300% growth rate for 2020. How do you value a company that’s taking over the world?” Cramer said, noting people who stayed out of the stock months ago due to valuation worries would have missed its latest move to the upside. Shares have risen nearly 75% since Aug. 31.

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