Top 11 best cloud computing stocks

From ChinaCache to IBM, here’s our guess at the Top 11 best cloud computing stocks of 2011 and 2012.

We’ve come a long way from floppy disks. We have laptops, smartphones and iPads in our hands, and we want to access the same data across all three platforms. More importantly, we don’t want to have to waste time transferring data across platforms.

Enter the cloud – an ineffable server farm in the sky that safely stashes away our data, backs it up and spits it back at us on demand. It’s the next evolution in computing, and it promises to make a lot of companies from start-ups to Dow components a whole lot of cash in the years to come.

Research firm Forrester estimates the cloud computing market will balloon from $41 billion this year to $241 billion in 2020 (per the Wall Street Journal). Clearly, there will be some big winners in the space. Here’s our guess at the Top 11 best cloud computing stocks of 2011 and 2012 in no particular order:

1) Citrix Systems, Inc. (NASDAQ:CTXS).
YTD Performance: +12.8 percent
Citrix surged to a new 52-week high on Monday. With a market cap of $14 billion, it’s one of the largest (nearly) pure-play cloud computing stocks on the market. The company also peddles some of the white collar world’s most well-known cloud software in GoToMeeting and GoToMyPC.

2) Amazon.com, Inc. (NASDAQ:AMZN).
YTD Performance: +1.2 percent
Amazon, which counts Reddit, Foursquare and Quora among its clients, got into the cloud game early, and the company appears committed to maintaining a leadership position in the space – even at the expense of short-term profits. Just last month, Amazon launched its so-called “Cloud Drive.” Targeted at everyday consumers, the online storage space gives users a place to stash MP3s for access anywhere they’ve got a Web connection.

3) Acme Packet, Inc. (NASDAQ:APKT).
YTD Performance: +44.6 percent
Q1 was good for Acme Packet. The company reported record revenue north of $59 million and raised its guidance for the rest of the year. Acme delivers voice, video and multimedia for enterprise-level clients including big dogs like Verizon (NYSE:VZ).

4) ChinaCache International Holdings Ltd. (NASDAQ:CCIH).
YTD Performance: -15.7 percent
A fairly new cloud computing offering out of China, ChinaCache hasn’t gotten much love from the street since its debut on the NASDAQ in October. Shares have fallen 35 percent since then. If a rising tide lifts all boats, though, ChinaCache should do well. IDC predicts China’s cloud computing industry will clock a compound annual growth rate of 23.8 percent through 2014.

5) International Business Machines Corp. (NYSE:IBM).
YTD Performance: +14.8 percent
IBM has listed cloud computing among it’s top four revenue-growth initiatives (alongside analytics, emerging markets and digitizing infrastructure). The company’s putting its money where its mouth is, too. CEO Sam Palmisano said he plans to use about $20 billion on acquisitions through 2015 with a big chunk of that change allocated specifically to cloud computing (per WRALtechwire). If IBM can’t convince an enterprise-level company to adopt the cloud, no one can.

6) SAVVIS, Inc. (NASDAQ:SVVS).
YTD Performance: +41.2 percent
Word on the street is Savvis might be ripe for the plucking – especially after investors watched Verizon gobble up competitor Terremark Worldwide for $1.4 billion earlier this year. Savvis focuses exclusively on IT solutions for businesses and government agencies.

7) Aruba Networks, Inc. (NASDAQ:ARUN).
YTD Performance: +67.1 percent
Aruba’s emphasis on mobile networks makes its growth prospects particularly attractive. Goldman Sachs reiterated its Buy rating on the stock last month with a price target of $39 – a 14 percent premium over market value.

8) Rackspace Hosting, Inc. (NYSE:RAX).
YTD Performance: +39.8 percent
Looking a multi-year RAX chart is like looking at a ramp that’s pointing at the sky. Shares are up more than 124 percent over the past 12 months. A P/E of 126 might not be justified, but the company appears to be consolidating power as the go-to cloud hosting company in the U.S., and now Rackspace is ready to sink its jaws into Asia (per SeekingAlpha).

9) 21Vianet Group Inc (NASDAQ:VNET).
YTD Performance: -15 percent
The latest cloud computing offering from China to IPO in the U.S., 21Vianet started trading late last week. The company counts some of China’s biggest tech companies among its clients including Tencent, Youku and Taobao. After three days of trading, VNET’s shares have fluctuated between $17.50 and $21. Check out my post Cloud computing in China: Is the 21Vianet IPO a buy? (VNET) for more.

10) VMware, Inc. (NYSE:VMW).
YTD Performance: +7.1 percent
VMware gives companies the ability to build and deploy “virtual” computers for software testing, script automation and data storage. The company recently got a thumbs up from Susquehanna, which raised its price target on the stock to $120 per share on rapid international growth (per SeekingAlpha). That’s about 25 percent higher than VMW’s current share price of $95.

11) Google Inc. (NASDAQ:GOOG)
YTD Performance: -10.3 percent
As everyday consumers grow more accustomed to storing and accessing data from the cloud, Google could lead the way. The company’s popular Docs application lets users edit, share and store documents and spreadsheets online. Google’s mobile operating system, Android, will likely strengthen consumers’ ties with their Google accounts. Before we know it, we might be storing everything on Google’s servers with the heaviest users footing the bill for the rest of us.

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Cloud computing in China: Is the 21Vianet IPO a buy? (VNET)

Investors who have seen the success of cloud computing companies in the U.S., will likely watch the 21Vianet IPO with interest. Is it a buy? Here are three reasons to say yes.

Cloud computing is in its early stages in China, and 21Vianet Group Inc. seems to be consolidating power in the space. The company runs 39,000 servers for 1,300 companies throughout China, and that was good enough for net revenue of nearly $80 million last year. Investors who have seen the success of cloud computing companies in the U.S., will likely watch the 21Vianet IPO with interest. Is it a buy? Here are three arguments for adding VNET to your portfolio:

1) Interest in the cloud is booming. If you’re unsure how to evaluate 21Vianet’s financials, just take a look at similar companies in the space. Rackspace Hosting, Inc. (NYSE:RAX) out of San Antonio, Tex., has quickly evolved from a traditional hosting company to a cloud-based hosting company. Of Rackspace’s 130,000 customers, 110,000 of them use the cloud. The company operates 56,000 servers and counting (compared to 21Vianet’s 39,000), and investors have pushed Rackspace shares up more than 36 percent since the start of the year. That’s got RAX trading at a P/E of 123! Investor interest in the space has been piqued, and 21Vianet should benefit from that enthusiasm.

2) Revenue in the clouds. 21Vianet faces competition in ChinaCache International (NASDAQ:CCIH) – a smaller China-based data services provider that IPO’d in October of 2010. Shares in CCIH have tumbled more than 40 percent since listing on the NASDAQ as profits have proven weaker than they were in 2009.

21Vianet’s revenue on the other hand grew 68 percent last year to nearly $80 million. The would have been good enough for sizable profits if the company hadn’t handed out share-based compensation like candy. All told, 21Vianet gave out more than $40 million in stock and stock options to employees. Expect those numbers to taper off dramatically as the company trims expenses and starts aiming to impress the Street. Revenue growth near 70 percent should be more than enough to keep investors happy. So long they can rein in expenses, it should be all systems go for VNET.

3) Mushrooming growth. 21Vianet touts itself as China’s “largest carrier-neutral Internet data center services provider.” While the country’s cloud hosting services have long been dominated by giant telecoms, there are signs that independent upstarts like 21Vianet are chipping away at that hegemony. Carrier-neutral providers grew their market share from 32 percent in 2008 to 35 percent in 2009. Even if telecoms retain their grip on cloud hosting, the data-center services market is rapidly expanding – a fact that will doubtless help 21Vianet move toward profitability.

International Data Corp. predicts a compound annual growth rate of 23.8 percent in the industry through 2014. That would balloon the data center services market from a $667 million industry in 2009 to a $1.9 billion industry by 2014. Pick the right horse in the race, and you’ve got what will likely be a winning stock.

Fred’s best guess: Keep in mind, this does NOT constitute investment advice. I’m not quite sold yet. A shaky street reception for ChinaCache makes me want to see profitability (and ongoing revenue growth) from 21Vianet before I buy. That said, China’s big winner in the cloud hosting space will likely be a multi-billion-dollar company in a few years. I’m just not sure which carrier-neutral company that will be.

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Top five stock picks for 2011

One of the keys to successful investing is beating the herd to the next hot stock. These five stocks and sectors could be those diamonds in the rough in 2011.

One of the keys to successful investing is beating the herd to the next hot stock. Here are my top five stock picks for 2011. They might not be in the limelight yet, but they very well could be by the end of the year:

1) Tech IPOs. In my unofficial tech IPO calendar for 2011, I detail 23 major tech companies that could have large, high-profile IPOs this year. Only one of those companies (Demand Media, Inc., NYSE:DMD) has gone public so far, and it shot up 33 percent in its first day of trading. The best are yet to come, from coupon-of-the-day company Groupon, which turned down a $6 billion offer from Google, to LinkedIn, a social networking company for professionals with more than 90 million members. Keep an eye on tech IPOs throughout the year as the market seems ready to take on more risk in a sector that’s growing rapidly; particularly in China.

2) Cloud-computing. As more businesses move their web sites and applications from dedicated web servers onto distributed server platforms, several companies are poised to soak up that new revenue stream. Amazon.com, Inc. (Public, NASDAQ:AMZN) has been at the forefront of the cloud computing industry although the company’s not all that transparent on how much revenue cloud computing actually generates for them. Estimates range from $500 million in 2010 to $1 billion. UBS analysts Brian Pitz and Brian Fitzgerald predict cloud computing could pull in some $2.5 billion a year for Amazon by 2014. Two other players you might consider in the space: Cisco Systems, Inc. (Public, NASDAQ:CSCO) and dedicated web hosting company Rackspace Hosting, Inc. (NYSE:RAX). Shares in Rackspace are up more than 86 percent over the past six months.

3) Blue chip stocks. Thanks to exchange rates and a falling dollar, even investors abroad are moving into large-cap American stocks. “Australian investors have a once-in-a-generation opportunity to get as much money as they can into overseas assets, ideally blue-chip global industrial companies,” Mike Hawkins, head of private clients at Evans and Partners, tells The Australian. “When you’re talking about those high-quality global blue-chip names, the likes of Nestle and Procter and Gamble (NYSE:PG) and Kraft (NYSE:KFT) and Unilever (NYSE:UL), you’re talking about companies that are well tapped into the growth in income and demand coming from emerging markets. We see this as a bigger story than China and India’s demand for Australia’s raw materials: the growth of the emerging-market consumer is a far more powerful and enduring theme than simply the supply of raw materials to China.” As a middle class begins to develop in emerging markets, consumers will have more disposable income for food and hygiene products. American blue chips have been positioning themselves in those markets for decades, and it could finally start paying off as the falling dollar will make their goods more affordable on Chinese shelves.

4) Platinum and palladium stocks. In the precious metals community, the focus throughout 2010 was almost exclusively on gold and silver. Gold posted gains for the year of 30 percent and silver rose 80 percent. Platinum and palladium did just as well with palladium shooting up 100 percent in 2010 and platinum rising 20 percent. The gains in platinum and palladium largely came on the heels of increasing demand from China and India where the metals are used as autocatalysts to limit pollution from cars and other vehicles. Car sales surged 32 percent in China and 31 percent in India last year. GM’s President of International Operations Tim Lee expects that growth rate to slow to 10 to 15 percent in 2011 as commodity prices rise. Still, Lee points out that the sheer size of the market in China still equates to a lot of demand. “Even 10 to 15 percent growth on such a huge base makes China a vast market,” he tells AFP. For all the talk of hybrid and electric vehicles, they still only account for 3 percent of the auto market worldwide, meaning they’ll hardly dent the growing appetite for platinum and palladium. Stricter emission standards in the U.S. should also compensate for the decreased demand for platinum and palladium as more of the metals will be used to limit emissions. ETFs offer the easiest (and safest) way to get a finger in the palladium pot. Try ETFS Physical Palladium Shares (NYSE:PALL). PALL’s up 66 percent in the past six months.

5) Wealth management in emerging economies. My fifth and final pick comes from my personal portfolio: Noah Holdings Limited (NYSE:NOAH). A wealth management company, Noah serves high net worth individuals in China. After the company’s IPO in November, shares briefly spiked 30 percent and they’ve since flat-lined around the IPO price. Heavy resistance at $16 per share indicates that the downside risk is limited, and some analysts are calling for earnings growth of 35 percent in 2011 and a target price of $22 per share. The company’s numbers are off the charts with year-over-year growth in net revenue at 210 percent. It makes sense that as the ranks of China’s wealthy swell, so too will the profits at the companies that serve them. Noah Holdings should be perfectly positioned to rake in growing profits from a brand new market.

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