Network Computing... in the Cloud
Long-term investors always try to find and catch trends -- and that’s what we have with the prospect of investing in cloud stocks. Here is a list of my top 10 Cloud Computing Stock and ETF Investment ideas for 2012 and beyond. These are web 2.0 companies in the cloud computing space, and other closely-related technology stocks. If tech makes business and enterprise users “go to the cloud”, maybe that’s where we should concentrate some of our investments. We should cloud connect our financial aspirations to this trend!
WHAT IS CLOUD COMPUTING?
Do you shake your head when you hear the phrase -- IaaS - infrastructure as a service? Do you understand the fascination with grid computing, or the public cloud, private cloud, and hybrid debate? Do you wish someone would explain the challenges, possibilities, and overall security of cloud computing in plain English?
For the needs of Information Technology (IT) to keep up with the pace of growing businesses in this modern, interconnected world, it has become necessary to take all the data to the “cloud”. Anywhere in the world, on any computer, laptop, tablet, netbook, or smart phone, all your data, information, files, database, analytics, and more needs to be synched, up-to-date, and fully accessible. This has meant the rise of on-demand public, private, and hybrid “clouds” (servers) providing IT, data, software-as-a-service (SaaS) and CRM (customer relationship management) and cloud download tools. In many ways it is not a new concept -- both Google’s Gmail and Google Docs provide that to users. But imagine the possibilities of coordinated grid computing -- where all of a company's diverse computer resources become a virtual supercomputer in the cloud.
What is changing is the push to move more users, new tech, businesses, and enterprise users to the cloud. More and more companies each fiscal year are devoting greater resources towards cloud computing initiatives and projects. That means more revenues for those companies in the right place at the right time -- and that means more opportunities for individual investors. But we need to figure out which cloud computing companies will matter going forward.
TOP TEN: 10 CLOUD COMPUTING INVESTING CHOICES - Stocks and ETFs
(market data as of 12/16/2011 - source: Yahoo Finance)
- Google, Inc. (ticker symbol: GOOG) - With a $202B market capitalization, this is the largest of the companies listed here, but with a P/E ratio of 21 and a forward P/E 14, it’s actually pretty cheap. Besides an exposure to cloud computing, you get this mega cap leader in search, online advertising and more with your investment in Google.
- Cisco Systems, Inc. (ticker symbol: CSCO) - With a $98B market cap, Cisco sports an almost 16 P/E ratio and a forward P/E of 9.5. This makes this large cap the cheapest stock here based on assumed valuations, and it has a 1.30% annual dividend. They sell internet protocol (IP) networking products to the IT and communications industry, as well as the related services.
- Oracle Corporation (ticker symbol: ORCL) - Another large cap at $149B, Oracle has a current P/E of almost 17 and a forward P/E of about 11, and pays a .80% dividend. Cloud services is a part of one of the three segments of this enterprise software company.
- F5 Networks (ticker symbol: FFIV) - With a current P/E of 36 and a forward P/E of less than 21, this mid-cap stock has a $8.5B market cap. It has both software and hardware technology for application delivery networking.
- Citrix Systems, Inc. (ticker symbol: CTXS) - With a current P/E also of 36 and a forward P/E of less than 24, this mid cap stock has a market cap of just over $12B. They market 'technology solutions' to be delivered securely no matter what device, network, or physical location of the user. They acquired Cloud.com in July 2011, RingCube in August 2011, and ShareFile in October 2011.
- VMware, Inc. (ticker symbol: VMW) - Large cap VMware, which is known for its "virtualizations solutions', has a current P/E of 58 and a forward P/E of 34. The company claims to "facilitate access to cloud computing capactity."
- Rackspace Hosting, Inc. (ticker symbol: RAX) - At $5.8B, this mid cap stock has a P/E of 94 and a forward P/E of 55. The launched Cloud Servers for Windows in summer 2010, and United Kingdom cloud service in January 2011.
- Amazon.com, Inc. (ticker symbol: AMZN) - Large cap online retailer Amazon.com ($83B), has a current P/E of 97 and a forward P/E of 91, making this a rather expensive choice using this metric.
- NetSuite, Inc. (ticker symbol: N) - Another mid cap stock ($3.1B), NetSuite has a forward P/E of 217, based on n/a for current P/E. The company is a cloud-based provider of financial information and ERP - Enterprise Resource Planning suites of software. They run their business as an SaaS (software as a service) subscription model. At this size however, along with stocks like Equinix (EQIX), LogMeln (LOGM), and others -- perhaps it’s a potential take-over target.
- First Trust ISE Cloud Computing Index ETF Fund (Ticker symbol: SKYY) - This exchange-traded fund actually has many (or nearly all) of these stocks among its top holdings and is therefore perhaps a safer way to invest in the entire basket of these stocks at once.
Of course, besides market cap size, current and forward P/E ratios, we must also consider whether or not these cloud computing companies have accelerating revenue growth, have control over their debt loads (while considering their overall balance sheet health), and what the other long-term prospects are in this marketplace. It’s also helpful to have some understanding of their business models as it relates to cloud computing, their major holders/investors (i.e. Wall Street whales!), plus an idea about each company’s leadership, talent pools, and management.
These cloud computing stocks and an ETF, are a good place to begin your research for what could be a solid investing trend for 2012 and beyond. Cloud computing companies may just need a place in your long-term investment portfolio. As always, please do your own research, and consult your own financial, tax, and other advisors before committing any risk capital.