More on the Cloud Revolution that we are…
More on the Cloud Revolution that we are investing in from yours truly:
I’ve long touted the App Revolution as being the single biggest market in the history of the planet and even published a book called 50 Stocks for the App Revolution. In the four months since I published that book, the stocks in that report are up some 20% vs. the S&P 500 and the other broader markets being up about 10%. I’ve now identified 30 stocks for the Cloud Revolution, which is in many ways, a subsector and perhaps an even faster growing subsector at that, of the broader App (smartphone/tablet/dashboard/PC) Revolution. I do believe that would make the Cloud Revolution the single fastest growing industry…ever.
Everytime you watch a Youtube or Netflix or Hulu video from any device, you’re a part of the Cloud Revolution. But it goes much deeper than just watching Seinfeld clips on your iPad, as there are several subcategories to the Cloud Revolution —
1. Consumer Platforms: (4 stocks) 2. Cloud Services: (5 stocks) 3. Virtualization: (2 stocks) 4. Cloud Components: (6 stocks) 5. Cloud Storage: (2 stocks) 6. Lower Layer Infrastructure: (4 stocks) 7. Higher Layer Infrastructure: (4 stocks) 8. Top Layer Infrastructure: (3 stocks)
As I talk about in the video below, one of my favorite stocks from the last category is a company most people wouldn’t think of as a “Cloud” company, Nuance Communications:
The fact is that as we all begin to Interact ever more with the cloud in all aspects from our lives, from, yes, watching Seinfeld clips to accessing your personal email at gmail and your corporate email on an app from your iPhone to storing your music and making VoIP phone calls, that much of that interaction will be voice-activated. And the leader in voice-recognition and therefore a major part of the top layer of infrastructure in “The Cloud” is Nuance. Here’s more about Nuance from the new report, 30 Stocks for the Cloud Revolution:
Company: NUAN – Nuance Communications, Inc.
Summary: Nuance Communications offers voice and language solutions for businesses and consumers worldwide. They offer transcription solutions and dictation services that automate the input and management of information through voice recognition technologies.
Balance Sheet
Cash and Cash Equivalents: 541 M
Short Term Investments: 5 M
Long term Investments: 28 M
Total Cash: 574 M
Total Debt: 851 M
Net Cash: -277 M
Outstanding Shares: 300 M
Net Cash / Share: -.92
Share Price: 20
Enterprise Value / Share: 21
Total Market Cap: 6 B
Enterprise Value: 6.2 B
2012 Sales Growth: 11.3%
2012 Earnings Estimate: 1.48
Enterprise Value Multiple: 14 Times Forward Earnings
Dividend & Yield: N/A
Last quarter Nuance Communications disappointed Wall Street and the stock got hit and it’s still below its recent highs. The buzz from the bears and the disappointed bulls was that the medical segment of the business was “decelerating.” It was, but we’re still talking about a segment that is growing double digits every quarter.
Nuance partners with virtually all the major health-care industry software providers, most of which are seeing steady growth in demand. And a little discussed aspect of Nuance’s business is licensing, in particular licensing demand for Nuance technology in the health-care software industry. In fact, most of the competitive solutions license Nuance’s speech recognition technology, in large part because of a smart acquisition by Nuance when they bought Speech Magic from Philips.
I am always a little bit shocked when I find a profitable technology company that has net debt on the balance sheet, as Nuance does. That said, the net debt is only 5% of the market cap and just one year’s worth of cash flow from operations. I’d look for this company to grow 10%-20% or more per year for the next decade or so — at least as fast this fast growing industry.
The fact that the stock can be bought for only 13 times forward earnings, even including for the net debt, is mostly a testament to the bodies of software companies like Nuance that Microsoft left behind over the years. The Street figures it’s just a matter of time before Nuance gets squeezed out of the industry that it helped drive for the last decade.
This company’s got staying power, cutting edge technology and huge margins in a growing industry.
Revolution Investing Rating: 9/10
For each of the 30 stocks we’ve identified as most widely exposed to the Cloud Revolution, we give a brief description of each company’s primary businesses and outline some of the most important balance sheet and business fundamentals. Rather than just going with a simple P/E, we break down the enterprise value of each company, which makes companies that have huge cash balances and lots of flexibility look cheaper than those carrying big net debt loads around their necks.
From there I give you some of my trademarked cut-throat Revolution Investing analysis including some history of the company, how it’s trying to position itself for the Cloud Revolution and how much I like or dislike the investment prospects for that company.
And for those of you who really just want a short hand rating system, don’t worry. I put a Revolution Investing rating from 5 to 10 on each stock (I didn’t include any of the dozens of lower rated Cloud Revolution Stocks we researched).
