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14 Cloud Stocks: Who Will Rule, Who Will Fade Away?

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Cloud computing remains the big story in tech, and there are still a lot companies entering the sector... just be particular when you're buying.

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Gregg Early: Well, it sounds like the cloud continues to grow. It doesn't seem like it's gotten old enough yet where there's a great deal of consolidation or the bigger players have snapped up. There seems to be a thousand flowers flourishing there. So do you see this as the trend for the next couple of years or so?

Rob DeFrancesco: Yep. The thing is, there have been some acquisitions there, and the ones that are left, a lot of them are pricey. I mean NetSuite is an expensive company.

There is also Workday (NYSE:WDAY), which became public last year and has cloud-based financial and HR software. They're mainly financial, but have been moving more into HR. These are expensive companies. So I don't see a lot buyers offering them a big premium for these. I think a lot of the names have been grabbed up. So, with the cloud name you can get a pullback in the stock. That's a good way to play it.

NetSuite is a great company. I think it's expensive here, around $70 a share; but if for some reason you get a pullback, that would be a good way to play the cloud. I think there will still be acquisitions, but I don't know. I think a lot of the good names were scooped up in 2012.

Gregg Early: Yeah, so they're now fully valued. It's like a lot of markets.

Rob DeFrancesco: Yeah.

Gregg Early: The hard part's the market where you really have to look at each stock individually to find out if there's any value there....

Rob DeFrancesco: Right. I mean recently, Goldman Sachs downgraded NetSuite, and there's another company called Ultimate Software (NASDAQ:ULTI), which is cloud-based human capital management, and they downgraded those to neutral on valuation.

They still like Cornerstone OnDemand because of its high top-line growth. So, yeah, I think a lot of investors they like the idea of the cloud, but they don't want to pay out for these names, these valuations.


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No positions in stocks mentioned.
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