Cloud stocks prepare to lift off

While other sectors were breaking out in this rally, cloud computing stocks retreated. Now they appear ready to bounce back.

By Jim Cramer Oct 11, 2010 8:45AM

jim cramerBy Jim Cramer, TheStreet

 

Amid the myriad breakouts in oil service stocks, heavy machinery, minerals, aircraft and aircraft parts, there's a group that has pulled back to where they might be ready to lift off again: cloud computing stocks. That's right, the most lamented and scorned equities after the blowup in Equinix (EQIX), the flagging data center warehouse play.

 

The potential move up makes sense to me. I am adamant that EQIX's problems are EQIX's problems and no more than that. The cloud business is alive and well and in long-term growth mode.

 

Here, after my weekend chart perusal, is who looks good and who is right on support and could thrust higher: Akamai (AKAM), Red Hat (RHT), Citrix (CTXS), Salesforce.com (CRM) and F5 (FFIV), the latter an attenuated cloud play but a fellow traveler nonetheless.

 

Of these, my favorite right now is Akamai because I think it is unlikely to remain independent if it stays this dominant in video. It is too likely that either Cisco (CSCO) or Hewlett-Packard (HPQ) will buy it. No one is disputing that business is strong. Its nearest competitor, Limelight Networks (LLNW), has seen business accelerate and not necessarily at the expense of AKAM.

F5 is down because it ran on news of an old takeover bid that was defrocked, along with a downgrade on valuation. Business is strong. I hardly regard it as broken, just expensive.

 

I recently interviewed Jim Whitehurst, the CEO of Red Hat, and I am convinced that the company is having an extraordinary quarter. Seems like a buy to me even if, like the others, it remains pricey despite the pullback. Same with Citrix, which is a desktop cloud play and one with a product cycle that's going gangbusters.

 

That leaves CRM. This is a tough one, as I keep hearing about discounting on its core products, and that is worrisome. I do not believe the worries will dissipate until the quarter, so it is the least likely to bounce up.

 

Still, the group as a whole, I think, is ready to come back. I see a bounce here once Equinix's woes are forgotten and regarded as strictly a problem with one company's execution instead of a broad slowdown in the cloud movement. The business of taking information down from remote servers, Amazon (AMZN)-style, is not in doubt. The growth buyers will come back, perhaps as soon as today.

 

At the time of publication, Cramer was long Cisco.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Click here to follow Cramer's Charitable Trust trades.

 

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