Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.
It doesn’t matter how “down in the dumps” this market is…
Find a stock with blind momentum, and it could pay off from both a long and short position.
Take a look at stocks like Salesforce.com (CRM) and Netflix (NFLX), for example…
Both went hyperbolic — and just keep running on nothing more than sheer momentum.
But is Salesforce.com really this hot?
Salesforce.com is involved with cloud computing — services, applications, and the ability to collect, store, and process data over the Internet. This sector is expected to grow at an annual rate of 28% from $47 billion in 2008 to more than $126 billion by 2012, according to IBM.
Heck, if you’re using Yahoo! Mail, Hotmail, or even Gmail, you’re working in clouds. You may be in a cloud right now… and not even know it!
And the sector is heating up… fast.
Just look at how out of control the bidding war was for 3Par (PAR), whose technology is seen as key in offering cloud services. I wouldn’t be shocked to see a buyout offer for Salesforce.com at some point… or even for Akamai (AKAM) or Brocade (BRCD).
But while growth will remain red hot, hold off on CRM until it pulls back; CRM’s technical and fundamentals say it’s best to wait.
How to play cloud computing and Salesforce.com near-term
Two things have happened with Salesforce.com so far:
- The stock pulled back $4 after running above the upper Bollinger Band and putting in an overbought read on Williams % Range (W%R)… just as we called for in Options Trading Pit.
- As we called for, the blind momentum crowd came back, jetting the stock higher and repeating the same pattern we saw with Netflix. (This happened to both stocks even though fundamentals and technicals screamed “Sell.”)
As if we were back the Internet boom of 1999, these stocks are just exploding.
But it’s only a matter of time before they fall back to reasonable valuations… Here’s why: CRM revenue is growing 25% a year, but the stock is trading at 150 times trailing earnings, 90 times this year’s earnings, and more than 55 times 2013 earnings. That’s absurd.
Insiders are unloading, selling another 6.5 million shares last week. And operating margins fell in the most recent quarter despite CEO cheerleading.
So what do you do here… Buy it? Sell it?
One of two things can happen from here… The stock could break down from above the upper Bollinger Band, and oversold reads on fundamentals again; on the other hand, the blind momentum crowd could come flooding in again, and we could have another Netflix-type runner on our hands.
I suggest the following: If you’re interested in buying, use a tight stop loss of -30% and hedge with a short position.
Or, just buy and hold Brocade (BRCD), another player in the cloud computing space.
But if these plays seem too risky for you, below are some other of the week’s best investment advice from the pages of Wealth Daily and our sister publication, Energy and Capital.
Also, be on the lookout for a buying opportunity from Options Trading Pit next week. This is one you can’t afford to pass up next week… Plus, we’ve got a new special report headed your way within the next few weeks.
Stay Ahead of the Curve,
Ian L. Cooper
Wealth Daily
Alternative Energy Infrastructure: Why this One Company will Control Midwest Wind Power
Editor Jeff Siegel discusses the one company that could eventually control 12,000 megawatts of Mid-western wind power.
DNA Vaccines: The Only Flu Shot You’ll Ever Need
Editor Steve Christ examines the H1N1 swine flu panic and explains how scientists are working to prevent a greater tragedy.
Energy Stock Technical Analysis: How to Spot Energy Stock Trends
Editor Ian Cooper addresses a reader’s concerns, and expands on a trading system discussed in recent articles.
You’ve Got to See This: How a Mongolian Oil Company is Making Readers Filthy Rich
Once the news hit the mainstream on what this company found, the stock jumped 42% in what seemed like minutes… And this is just the beginning of what could be a HUGE run. I’m talking about the possibility of an easy 10-bagger here. Don’t be left out in the cold when this one explodes even more.
Nanotechnology Investments: Nanotech Stocks are Poised for Growth
Editor Steve Christ examines a new generation of wealth made possible by nanotechnology investments.
Underwater ‘River’ of Oil Confirmed in Gulf: Large Underwater Oil Plume Confirmed
Analyst Adam Sharp examines the newly discovered plume of oil in the Gulf of Mexico.
Easiest Way to Make Money — Ever: The Guide Your Broker Doesn’t Want You to See
Most people think profiting from options requires years of investment experience or a seasoned stock broker. That’s why people are losing thousands of dollars everyday. Our in-house options expert has put together a FREE guide detailing an options strategy that’s so easy he’s calling them “automatic options.” You’ve got to check this out… and not just for the free trade.
Going Mobile with Full-body Scans: Buy American Science & Engineering Inc.
Editor Christian DeHaemer talks about the upside of the full-body scan stock.
Chinese Water Stocks: Chinese Drought — Not Floods — are the Real Story
Editor Nick Hodge reveals why drought — not flood — should be the real Chinese story grabbing headlines these days.
