“The Almost Perfect Stock” (Cloud Computing)

By Travis Johnson, Stock Gumshoe, August 4, 2010

Well, it appears the secret’s out on how to get the Gumshoe’s attention: It’s not enough to have a hype-filled ad that promises huge gains, the ones that float to the top of my to-do list often also have perfect, pithy headlines like the one I’ve quoted above: who can resist “The Almost Perfect Stock?”

Not me.

Even if it is, again, from Louis Navellier, and I’ve arguably written too much about him already in recent weeks. But this ad focuses on a cloud computing company, and I’ve also gotten so many questions about the Motley Fools indefatigable cloud computing ad recently that this gives me a quick opportunity to remind you about those stocks, too, at a time when so many folks are talking about big-cap tech stocks and the relatively inexpensive growth opportunity that so many of them represent.

The Motley Fool’s take on cloud computing has been covered many times in this space, though not as many times as it’s been rehashed by the Fool marketers — it’s generally sold to us as the “kings of cloud computing” or the “words that Bill Gates doesn’t want you to hear,” I won’t go through it all again but the original few runs of this ad teased (or touted — sometimes they revealed some of the names in the ads) VMWare (VMW), Akamai (AKAM), and Google (GOOG). More recent ads have teased this by saying that “a 118-year-old technology is about to bring Microsoft to its knees…” which is basically just a repeat of the same stuff but uses the comparison of cloud computing/software as service companies to utilities (the 118 year old stuff refers to electric utilities and the building of the power grid.

And they also add on a tease about “Cloud Computing 2.0”, which still touts the same companies but also throws two other “under the radar” ideas on the table, including Salesforce.com (CRM) (the other one doesn’t get any hints so I haven’t looked into what it might be).

So that’s a quick refresher, and a reminder that several newsletters are very actively touting “cloud computing” stocks of one stripe or another … but also that some of them have been doing so for upwards of two years, so we should pause for a quick skepticism break when they tell us that this week is the key buying opportunity that you don’t want to miss (if only because, naturally, they’ve made the same claims each time similar ads were mailed).

But today we’re not just looking at some old Motley Fool ideas, we’re looking into Louis Navellier’s new (as far as I know) idea that he calls “the almost perfect stock.” So what is it? Well, we know it’s in cloud computing … but of course, he also throws in a nice little passel ‘o clues:

“Imagine… a technology company whose product you don’t install, that reduces business costs by billions a year, and that end users can access with the click of the mouse.

“…a company whose revenues jumped 48% and whose earnings soared 128% last quarter—ALL while handing investors 130% 12-month gains.

“So what, exactly, is the flaw here?

“99 out of 100 investors have never heard of it and yet it’s transforming the computing world just as Microsoft and Intel did before it.”

Of course, the “99 out of 100” is rarely true for Navellier picks, especially for his Blue Chip Growth newsletter, since that tends to focus on buying large cap momentum growth stocks — which also tend to be the most well-known stocks among individual investors (like Intuitiive Surgical, Apple, Microsoft, etc.). Then again, I’m sure he could make that stat true if he picked the right 100 investors, so we won’t quibble.

How about some more clues about which stock is “almost perfect” and “set to double investors money again?”

“this company’s breakthrough technology works behind the scenes on the Internet. As a result, end users like you and me don’t need to buy or install it.

We use it “on the go” with a few clicks of a mouse, no differently from using Yahoo mail, Google mail, YouTube, Facebook, Paypal, eBay and the like.

The multibillion-dollar businesses that are employing this company’s technology are making out like bandits by not only reducing their customers’ software and hardware costs but also by delivering better service as well.

“…its customer list looks like the who’s who of the world’s largest companies, including …

* 100% of the Fortune 100
* 98% of the Fortune (that’s 491 out of 500)
* 96% of the Fortune (that’s 995 out of 1000)”

So that’s pretty good. But we always want more — another clue or two, please?

“I’m not the only one who seeks the mammoth profit potential here.

“In the past three months, the analyst community also has revised its consensus earnings estimate 15% higher for the company. This hasn’t gone unnoticed by mutual funds and institutional investors who have simply loaded up on this stock for the long haul.

“• UBS Global Assets 6.4 million shares
• FMR LLC 6.4 million shares
• Sands Capital 3.2 million shares
• Morgan Stanley 2.4 million shares
• Fidelity Growth 2.2 million shares
• Vanguard Morgan 1.1 million shares”

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So … we can issue the same rejoinder here that almost always comes to mind when a teasermeister touts the institutional holders who have millions of shares and are “in it for the long haul:” There’s no way for Navellier to know how long these institutions will hold the shares, and any stock with a market cap of over a billion dollars is going to have a similar list of familiar-sounding institutions who each own millions of shares — unless you’re specifically trying to follow the portfolio of the Fidelity Growth mutual fund, for example, this isn’t terribly meaningful … and even if th