As the bear market wears on, most stocks have taken a pretty good hit so far in 2022. However, tech has gotten hit especially hard. Not only is this damaging to sentiment, it’s damaging to many investors’ portfolios. The silver lining is that we have an opportunity as we parse through certain categories, looking for the best cloud stocks, best advertising stocks and so forth.
As it pertains to the cloud, there are some very high-quality companies that are getting lumped in with the bad companies. That’s both good news and bad news.
It’s bad because great companies are seeing their stock prices evaporate. It may not be fair, but that’s the reality of the situation. The good news is that these sell-offs create great opportunities for long-term investors looking for the best cloud stocks.
Best Cloud Stocks: Salesforce (CRM)
Salesforce (NYSE:CRM) is perhaps one of the best opportunities on the board when it comes to cloud stocks. Many companies are seeing some sort of slowdown in their business, whether it’s related to demand, supply chain issues or inflation.
Not Salesforce, though.
The company issued strong guidance earlier this year, then raised its guidance last quarter. That came alongside a top- and bottom-line beat as sales grew 24% year over year. Co-CEO Marc Benioff had this to say: “So far, we’re just not seeing any material impact from the broader economic world that all of you are in.”
Further, Salesforce is forecast to grow revenue by 17% to 20% in each of the next four years. By maintaining top-line momentum, Salesforce is effectively securing its future bottom-line growth.
The stock still remains more than 40% below its high, giving investors a juicy discount if they’re looking to accumulate this stock for the long term.
Microsoft (NASDAQ:MSFT) has one of the largest cloud businesses in the entire industry. Coming in just behind Amazon (NASDAQ:AMZN) in terms of market share, this company — however obvious — should not be ignored. But it’s not just that Microsoft is one of the best cloud stocks out there. It’s that it’s one of the best stocks overall.
The company has a fortress for a balance sheet and despite its 30% peak-to-trough decline, it still sports a market cap of roughly $2 trillion. It has better operating and profit margins than the entire FAANG group too.
Perhaps the best part about Microsoft? It has growth. Analysts expect more than 18% revenue growth this year — in a supposed recession? — and 14% growth in 2023. In 2024 and 2025, analysts expect 13% to 14% growth in both years.
On the earnings front, expectations call for 15.5% growth this year and next year, followed by 16.9% growth in 2024 and 14.7% growth in 2025. Granted, these are just estimates, but these numbers are pretty impressive for such a big company.
Following perhaps the most obvious choice when looking at the best cloud stocks, we have a controversial one with Twilio (NYSE:TWLO).
Twilio stock is one of the best cloud stocks, but it’s also a growth stock. That means that its financials are not as strong as companies like Salesforce or Microsoft. It also implies that the stock has been crushed along with its other growth stocks peers.
Shares have suffered a peak-to-trough decline of 78%, which shows just how painful of a ride it has been. As is usually the case, Twilio’s revenue guidance has been fine (even strong), but its earnings forecasts remain lower than what the market wants to see.
I don’t think it would matter, though. It’s a growth stock and growth stocks have been crushed.
That’s even as analysts expect 36% revenue growth this year and 30%-plus growth in each of the next two years. In fact, if one were to look at the year-out estimates, they continue to rise even though the environment continues to worsen. Eventually, Twilio bulls will be rewarded for their patience.
— Bret Kenwell
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Source: Investor Place