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Cloud computing is rapidly becoming the most critical data solution in our increasingly mobile and digital lives.
For businesses, cloud computing can bring down expenditures on hardware and IT and make expansion and upgrades seamless.
For individuals, the cloud makes your data as mobile as you are and eliminates the nightmare of experiencing a hard drive crash without an up-to-date backup.
Cloud computing is also integral to the growing Internet of Things (IoT), which brings everything from cars and home appliances to medical and farm equipment into the connected world.
As Money Morning Defense and Tech Specialist Michael Robinson writes, "We're talking about a world in which just about every physical object... is in some way connected to the web."
Given cloud computing's role in this growing phenomenon, it's no wonder that research firm Gartner projects the cloud computing market to grow nearly 60% to $278.3 billion in the next three years.
If you haven't already gotten in on this trend, we've got a quick and easy way for you gain broad exposure to the cloud computing industry. In one simple step, you'll start reaping huge profits from this sector.
Then, for those looking for even more exposure, we'll give you a bonus play that could hand you an extra 50% on top of it.
But let's start by taking a look at the best ETF for this industry: First Trust Cloud Computing ETF (NYSE: SKYY).
SKYY: Your Quickest Entry into One of Tech's Most Exciting Sectors
SKYY has doubled in value since Michael Robinson recommended it to Money Morning readers in December 2013. And over the last two years it has beaten the S&P 500 by 172%.
Still, this collection of 28 of the most important players in the cloud computing industry is available for just a little more than $50 per share - and it's got a lot of room to grow.
The ETF is structured into three broad categories.
Ten percent of the portfolio goes to four technology conglomerates that are involved in cloud computing. These are the big players you already know and might already have in your portfolio: Microsoft Corp. (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL), Hewlett Packard Enterprise Co. (NYSE: HPE), and International Business Machines Corp. (NYSE: IBM)
The biggest chunk of the portfolio is devoted to 17 pure-play cloud computing companies, each accounting for roughly 4.5% of the total portfolio. These are either direct cloud service providers or companies that provide various cloud-based products and services.
That includes a few more big names, like Alphabet Inc. (NASDAQ: GOOGL), Amazon.com Inc. (NASDAQ: AMZN), Facebook Inc. (NASDAQ: FB), and Netflix Inc. (NASDAQ: NFLX).
It also includes a number of companies we've recommended in the past and that will surely be a benefit to your portfolio. To name just a few of these...
- VMware Inc. (NYSE: VMW) is a top provider of cloud computing and networking solutions to a wide range of industries. Its healthcare software, for example, allows practitioners to stay mobile and access patient information and other relevant analytics on their smartphones - without compromising the security of that data.
- Cisco Systems Inc. (NASDAQ: CSCO) is a Silicon Valley tech giant that's been around for over three decades. Its founders were pioneers in connecting PCs via local area networks (LANs). More recently, it's developed a hybrid cloud solution for Google Cloud customers, creating stiff competition for Amazon Web Services.
- Open Text Corp. (NASDAQ: OTEX) confirms Michael Robinson's mantra that every company is a tech company. It provides cloud-based information analytics for just about every facet of institutions large and small, enabling them to increase efficiency, cut costs, and generate bigger profits.
The final category of SKYY's holdings is non-pure-play cloud computing companies. These seven companies provide products and services that support cloud technology indirectly.
This category also includes some of our past favorites, such as Adobe Inc. (NASDAQ: ADBE) and Activision Blizzard Inc. (NASDAQ: ATVI).
And each of these companies come in at only around 1.4% of the total portfolio.
That's where our bonus play comes in...
SKYY certainly gives us a solid mix of cloud computing companies. But sometimes a company with much higher than average profit potential gets only a small allocation in an ETF's portfolio.
Buy a few extra shares of that "rocket stock," as Money Morning Chief Investment Strategist Keith Fitz-Gerald would call it, and you can instantly turn your foundational ETF into a supercharged pair of investments.
And SKYY provides us one stock in particular that's exactly what we're looking for.
As we mentioned, SKYY has beat the S&P 500 by 172% over the last two years. But our target stock has beat even that by a wide margin.
If you invested in SKYY during that time, you're pretty happy with your 43.8% return. But if you had added one share of our stock pick for each share of SKYY, you'd boost your gains to 66.5%.
That's an extra $52 in your account for every $100 you invest.
We're not talking about a high-risk speculative pick here either. This is a company that doesn't just have the cloud computing trend pushing it up. It also combines one of the most stable industries on the planet with the fastest-growing sector of the U.S. workforce.
In tandem with a diversified ETF like SKYY, this pick will push your profits to the next level...
"Software as a Service" Has Turned This Company into a Certified Juggernaut
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Nothing is certain but death and taxes. So Intuit Inc. (NASDAQ: INTU), the top provider of tax preparation software is one of the most dependable investments you can make.
But it's also in a major growth spurt, which is why Michael Robinson recommended it in July 2015. Since then, it's up 98%, compared to just 26.5% for the S&P 500.
And thanks to its recent moves, Michael has recently doubled down on his earlier recommendation.
Over the last several years, Intuit has moved its software - including Quicken, QuickBooks, and TurboTax - to the cloud. This "software as a service" (SaaS) model makes its products affordable for a wider range of customers, who now pay for them via monthly subscriptions.
The company has also tapped into the enormous and growing freelancer market by launching QuickBooks Self-Employed in 2014.
The United States is riding an impressive 95-month job creation streak. But what's even more striking is that the freelance workforce - now accounting for $1.4 trillion annually - is growing three times faster than the overall labor force.
At this rate, according to a 2017 study by Upwork and Freelancers Union, freelancers will be a majority of the U.S. workforce by 2027.
Some of those new freelancers are making the switch out of pure entrepreneurial spirit, and some are simply adapting to economic realities. Either way, this trend puts Intuit, which already has 5.5 million small businesses and freelancers as customers, in an ideal position to serve this growing segment of the population.
QuickBooks Self-Employed is available at a very reasonable subscription price of $10 per month. It allows users to track every aspect of their finances, including mileage for work purposes, and to keep personal and business transactions separate along the way. And it can all be done seamlessly between the user's computer, tablet, and smartphone.
Upgrading to the $17-per-month package gives them TurboTax too, which is fully integrated into QuickBooks to make the user's yearly tax return a cinch. It will even calculate estimated taxes automatically over the course of the year.
Another revenue stream is Intuit's highly popular Mint app.
Available free of charge to users, Mint consolidates all their financial accounts into one easy interface. Users can keep track of bills and pay them directly through the app, set budgets, and monitor their overall financial health.
Through advertisements, consumer data, and referral services for financial institutions, Mint is part of a consumer segment that grew sales by 22% in the most recent quarter from the year before.
Sales for the company overall grew by 12% in that time frame, and more importantly, earnings per share rose by 164% to $0.29.
As the workforce changes over the next decade and more, Intuit is going to be one of a small number of companies prepared to reap the rewards.
And that's on top of its role in cloud computing.
The only question left, then, is how to balance your shares of SKYY and INTU.
Right now, INTU trades for about four times the price of SKYY. So if you want to have an even balance between the two, you'd simply buy four shares of the ETF for every share of Intuit.
But you may feel free to tinker from there. Fewer shares of SKYY and more of INTU gives you more growth potential, but less diversity, and (theoretically) more risk.
Whatever balance is right for you, this pair of investments will give you both a solid floor and plenty of rocket fuel to help take your portfolio to the next level.
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About the Author
Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.