7 Cloud Computing Stocks to Lift Your Portfolio to New Heights

Posted on Friday, November 20th, 2020 by MarketBeat Staff
7 Cloud Computing Stocks to Lift Your Portfolio to New HeightsCloud computing sounds complicated, and it has become more sophisticated as it evolves. However, the basic idea behind the cloud is the same. The “cloud” is a euphemistic term for the delivery of different services via the internet. In its early days, the cloud was used exclusively for data storage. Here’s an easy example of why this was important.

Back when the internet was cutting its teeth, I worked in marketing communications. The need to comply with Total Quality Control Systems (TQCS) for our largest clients meant we had to save every version of our files. Every. Single. One. Now imagine that you’re producing a 120-page product catalog complete with photos and charts. Your hard drive is burning up just thinking about it. Yet that “data” had to be stored somewhere. And so we had a virtual server farm to try to warehouse all these graphic intensive (and memory sucking) files until we could archive them.

Other than the storage nightmare, consider that it was a pain to work remotely. You could copy a file from the server, but then were you working on the right file? I’m sure at least one person is reading this who remembers this pain.

The cloud takes that away. Cloud computing allows you to store files on a secure, remote server that everyone can access anywhere they have an internet connection. But it’s become so much more than that. Cloud computing now gives businesses a platform from which they can create applications and software. If that sounds confusing, I hope to simplify it in this presentation. To help you understand which cloud computing stocks, you may want to add to your portfolio, and we’ve created this special presentation. These are seven of the cloud computing stocks that will continue to grow with the sector.

#1 - Microsoft (NASDAQ:MSFT)

Microsoft logo

Microsoft (NASDAQ:MSFT) may be one of the more obvious and pricey choices among cloud computing stocks. However, it’s hard to imagine talking about cloud stocks to buy without mentioning Microsoft or Amazon (NASDAQ:AMZN). But since Amazon can be discussed for so many other reasons, I’ll leave its Amazon Web Services (AWS) out of this presentation.

Which gets me back to Microsoft and its Azure cloud service. Azure literally covers the world with data centers on every continent that are linked by fiber cable. Microsoft adds another barrier to entry because it manages these data centers' capacity to handle local laws and regulations.

Since the company pivoted to the cloud back in 2014, shareholders have been rewarded with a 36% annual gain over five years.

And unlike the other stocks in this presentation, Microsoft pays a dividend that has increased for the last 10 years (most recently in September 2020).

About Microsoft
Microsoft Corp. engages in the development and support of software, services, devices, and solutions. It operates through the following business segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing. The Productivity and Business Processes segment comprises products and services in the portfolio of productivity, communication, and information services of the company spanning a variety of devices and platform.Read More 

Current Price: $299.67
Consensus Rating: Buy
Ratings Breakdown: 30 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $324.09 (8.1% Upside)



#2 - zScaler (NASDAQ:ZS)

Zscaler logo

The red-hot segment of a red-hot sector in cybersecurity. As more companies have gone to a work-from-anywhere model, the need for cybersecurity tools, such as those offered by zScaler (NASDAQ:ZS), have increased almost exponentially.

In the case of zScaler, the company gives customers the ability to protect their IT infrastructure and do so on a subscription basis. Analysts love this because it gives zScaler a predictable, recurring revenue stream.

zScaler is an example of both the risk and reward of cloud computing stocks. ZS stock is up 192% for the year (as of this writing). And while analysts give the stock a consensus buy rating, there are mixed reviews on whether the company’s stock is at a tipping point.

That shouldn’t necessarily be your concern. The question you have to ask is, does the company have an addressable market? It does. And is it around for the long haul? Again that answer appears to be yes. I talked with a more “technically savvy” friend who suggested zScaler may have more of a moat as a network security platform than CrowdStrike which offers an endpoint security platform.

About Zscaler
Zscaler, Inc engages in the provision of cloud-based internet security platform. It provides four integrated and comprehensive solutions to customers using cloud platform, the Zscaler Zero Trust Exchange. The firm offers Zcaler internet access, private access, and platform. The company was founded by Jay Chaudhry and K.Read More 

Current Price: $272.40
Consensus Rating: Buy
Ratings Breakdown: 20 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $292.19 (7.3% Upside)



#3 - Okta (NASDAQ:OKTA)

Okta logo

I’m a big fan of the “understand what you’re buying” school of investing. And so, while some parts of the cloud computing sector can read like a foreign language to me, Okta (NASDAQ:OKTA) is easy to understand. You can imagine that you need a way to control access to that system once you have a cloud infrastructure.

Okta is the creator of a cloud-based identity management service. This allows their client base of approximately 9,000 organizations to manage their user identification and authentication for employees, contractors, and customers.

The company has a nice habit of beating analysts’ expectations for revenue and profit. And in its most recent earnings report, the company delivered positive EPS for the first time since going public. The company’s stock is up nearly 100% since the beginning of the year.

Analysts rate OKTA stock as a buy. And although the consensus price target suggests the stock could fall, recent analyst ratings suggest the stock may have an upward move of up to 10%. Should you believe it? Absolutely. Okta is widely viewed as the leader in the identity-as-a-service (IaaS) sector. It has revenue that is only a bit over 10% of the total addressable market of $55 billion.

About Okta
Okta, Inc engages in the provision of identity management platform for the enterprise. It operates through United States and International geographical segments. The firm's products include single sign-on, multi factor authentication, API access management, authentication, user management, and lifecycle management.Read More 

Current Price: $257.23
Consensus Rating: Buy
Ratings Breakdown: 19 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $289.67 (12.6% Upside)



#4 - Twillio (NYSE:TWLO)

Twilio logo

Like Okta, the business case for Twilio (NYSE:TWLO) is better understood when you think of what they do. Twilio is a software company that creates the pieces, or building blocks, for developers to put the company’s technology in things such as apps, messaging systems, etc. Think of the push notifications you receive to let you know about your ride-hailing service, an Airbnb reservation, even food delivery notifications. All are based largely on Twilio.

Like most cloud-based systems, a key benefit of Twilio is the speed at which it allows developerment to take place. What used to take weeks or months can now be done in hours.

The company continues to increase its active customer base. At this time, it has nearly 210,000. And with the company’s acquisition of Segment, a customer data platform, the company is forecasting its market opportunity to increase by over 25% (from $62 billion to $79 billion).

The company draws significant attention from analysts who give the stock a consensus price target of $328.64, with one analyst giving TWLO stock a price target of $550. That’s the nature of this red-hot segment.

About Twilio
Twilio, Inc engages in the development of communications software, cloud-based platform, and services. Its products include Twilio flex, messaging, programmable voice, programmable video, elastic SIP trunking, and IoT. The company was founded by John Wolthuis, Jeffery G. Lawson, and Evan Cooke in March 2008 and is headquartered in San Francisco, CA.

Current Price: $351.83
Consensus Rating: Buy
Ratings Breakdown: 23 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $459.52 (30.6% Upside)



#5 - DataDog (NASDAQ:DDOG)

Datadog logo

DataDog (NASDAQ:DDOG) operates in another niche of the cloud computing segment. In DataDog, the company focuses on the “observability” of a company’s cloud computing applications. As much as I loathe buzzwords, it’s important to understand the importance of observability to a company’s cloud platform.

DataDog gives companies “end-to-end, easy-to-use solutions” that help them optimize performance, plan resources and troubleshoot potential issues. The need for the company’s services is likely to increase as companies continue to move more of their IT infrastructure and applications to the cloud.

DataDog is operating in an increasingly competitive market. Companies like Splunk (NASDAQ:SPLK), New Relic, and Oracle (NYSE:ORCL) create cloud observability platforms. However, analysts like DDOG stock because of how the company has been able to innovate faster than the competition, allowing the company to have over 400 third-party integrations for software with security, program development, and operations.

Despite being up over 140% for the year, analysts still see a potential upside of nearly 10%.

About Datadog
Datadog, Inc provides monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud in North America and internationally. The company's SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and security monitoring to provide real-time observability of customers technology stack.Read More 

Current Price: $142.84
Consensus Rating: Buy
Ratings Breakdown: 12 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $130.22 (8.8% Downside)



#6 - DocuSign (NASDAQ:DOCU)

DocuSign logo

DocuSign (NASDAQ:DOCU) was a pandemic winner and then a victim of panic selling. But this is an example of where the buyers had it right, and the sellers may be missing the longer-term story.

For the uninitiated, DocuSign is on a paperless society's vanguard by enabling electronic signatures for important financial documents. For obvious reasons, the company enjoyed tremendous growth during the pandemic as contactless everything was

However, DocuSign’s service was an idea whose time had come long before the novel coronavirus made it necessary. And the simple fact is that once consumers have begun signing documents remotely, they’re not going back. Don’t believe me? Let me ask you when the last time your child has called you out of anything other than necessity is? I’ll hang up and wait. There are certain times when we hit an inflection point and aren’t going back.

Those investors who bought DOCU stock on the dip in September have been rewarded with a tidy gain of around 15%. And analysts believe the stock has further to go.

About DocuSign
DocuSign, Inc provides cloud-based electronic signature solutions. Its cloud based electronic signature platform helps companies and individuals securely collect information, automate data workflows and sign anything. The firm automates manual, paper-based processes allowing users to manage all aspects of documented business transactions include identity management, authentication, digital signature, forms and data collection, collaboration, workflow automation and storage.Read More 

Current Price: $277.12
Consensus Rating: Buy
Ratings Breakdown: 16 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $314.78 (13.6% Upside)



#7 - Trade Desk (NASDAQ:TTD)

The Trade Desk logo

Earlier this year, I wouldn’t have included The Trade Desk (NASDAQ:TTD) on a list of cloud computing stocks to buy. The digital ad-buying platform is in a battle for supremacy with entrenched suspects in the ad platform game such as Amazon, Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOGL).

The question I had at that time was the “walled gardens” that these companies created. Simply put, when you enter “ice skates” on your Google search engine, and you start getting ads about ice skates, it’s not by accident. Google is anticipating your desire to purchase ice skates. But they do so as a curated service. In other words, they don’t sell your data.

The Trade Desk opts for an open internet platform that tries to personalize the content through programmatic advertising. In this model, companies target content providers that attract their target consumers. The idea is to fine-tune their ad spend and measure their return on investment (ROI).

If the company’s recent quarter is any indication, programmatic is starting to gain traction. The company’s revenue increased by 32%, which was higher than the 13% decline in the prior quarter. And that has sent TTD stock soaring nearly 25% since the report came out on November 5.

About The Trade Desk
The Trade Desk, Inc offers a technology platform for advertising buyers. It operates through United States and International geographical segments. The firm's products include audio advertising, mobile advertising, native advertising, data management platform, cross-device targeting, and inventory and marketplaces.Read More 

Current Price: $72.44
Consensus Rating: Buy
Ratings Breakdown: 15 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $88.14 (21.7% Upside)

 

Cloud computing stocks were starting to look a little overheated heading into 2020. The pandemic moved millions of workers to remote work and the second wave of cloud computing mania arose. And it’s not going away anytime soon. Ask yourself this question, are companies going to be looking to collect more data or less? Is 5G going to make us less dependent on technology or more?

We are a connected world, and the cloud will be necessary to keep those connections intact and secure. With that said, this is an industry in which valuations are … in the clouds. And that means that there is the potential for some correction either due to profit-taking or normal pullbacks. However, the long-term narrative for cloud computing is not going to go away. Companies are not likely to walk away from the cloud, even if their employees become centralized once again.

7 Defensive Stocks to Buy on Market Jitters

Defensive stocks are companies that deliver consistent revenue and earnings regardless of what is happening in the broader economy. This has the effect of allowing these stocks to outperform the market when the economy is in a downturn. But it also means that these stocks are frequently overlooked during bull markets.

After all, for many investors, particularly younger investors, but the benefit of capturing a dividend is far down on their list of priorities. But it’s specifically their ability to serve as a hedge against volatility that makes defensive stocks worthy of consideration in every portfolio.

One characteristic of defensive stocks is they have a high percentage of institutional ownership. These institutions (hedge funds, large investment banks, mutual funds, etc.) are frequently referred to as the “smart money.” By putting their money into these companies it’s a sign that the company is financially sound and likely to perform well.

Defensive stocks can be found in many sectors. In this presentation, we’re giving you one pick from various sectors.

View the "7 Defensive Stocks to Buy on Market Jitters" Here.





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