Analysis: Investors look to cloud for tech stock picks

Fri Jan 14, 2011 5:45pm EST
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By Jim Finkle

BOSTON (Reuters) - Jeffrey Saut simply looks up to remind himself which tech stocks will be hot in 2011.

Saut, chief investment strategist for brokerage Raymond James, says he is betting on companies that are leaders in cloud computing -- using Internet technology to move computers and information away from desktops and into remote data centers.

Despite the surge in cloud computing stock prices last year, investors are expecting an encore in 2011 as the revenue growth for these companies rises faster than the broader technology landscape.

Will Danoff, who manages the $72 billion Fidelity Contrafund, is among the most closely watched investors who has embraced the cloud. He says that the cloud is one of his investing strategies for 2011 because he expects companies that sell into the sector to outperform the broader market.

IT research firm Gartner estimates that companies that sell software as a cloud-based service will see revenue growth accelerate this year, climbing 16.2 percent. Last year sales grew an estimated 15.7 percent.

The sector is drawing attention because its sales are revving up just as growth in overall technology spending is on the decline. Gartner sees worldwide tech spending growth slowing to 5.1 percent this year, down from 5.4 percent in 2010.

Buyout speculation on cloud computing leaders sent valuations in the sector to nosebleed levels last year. Cloud pioneer Inc trades at 122 times next year's average forecast for earnings per share, compared to a ratio of 13 times for tech blue-chip IBM.

Oracle Corp Chief Executive Larry Ellison last year told Reuters that he looked at buying Salesforce, but that its CEO, Marc Benioff, wanted too much money for the software maker.   Continued...