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If you've followed along with me for any length of time at all then you know I'm a big believer in cloud computing.
And it's not just because the global market is growing at 21.4% a year and will be worth $185.8 billion by 2024, according to KBV Research.
It's something far more fundamental. A well run firm that uses the cloud to deliver software as a service (SaaS) have two things that hardware companies can only dream about.
The first is high profit margins. The second is even better – recurring revenue. Literally the money just rolls in month after month after month.
Here's the thing; companies that have made the move from software publishing to the cloud can really clean up.
That's really important now because after the bear-market rout, companies and investors alike are taking a shine to liquidity.
Today, I'm going to reveal five reasons why a beaten-down tech leader should be on your watchlist right now…
Cloud-Focused Expansion
As a creative professional, I have been following Adobe Systems Inc. (NASDAQ: ADBE) for more than 30 years.
As a former musician, I would have artwork designed for my CDs and also need to have photographs professionally edited and color corrected. And as a journalist, I knew that the software the firm developed played an integral role in desktop publishing.
The company is highly regarded for such products as Illustrator for creating, editing, and managing graphics as well as Photoshop for managing and editing pictures.
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Back in 2009, Adobe quietly began moving from a sales model to a de facto "rental" model. Users pay ongoing monthly fees to gain access to a range of product delivered via the Web, or "the cloud."
But it has hardly rested on its laurels. Back in 2018, Adobe bought the privately held firm, Magento Commerce for $1.68 billion. That moved Adobe from a focus only on digital content management and related analytics into e-commerce
At the time of the merger, Magento said it handled more than $150 billion in gross merchandise volume. By contrast, that is nearly twice as much as eBay Inc.'s (NASDAQ: EBAY) $88.4 billion in 2017, according to data from FactSet.
Let me show you why I say all this by running ADBE through the five filters we use to screen stocks that can truly help you build your wealth. Take a look:
Tech Wealth Rule No. 1: Great Companies Have Great Operations
These are well run firms with top-notch leaders.
One way you can judge that is by taking a look at key partners. And Adobe is working closely with one of the world's best cloud services firm, Microsoft Corp. (NASDAQ: MSFT).
Microsoft ranks second in cloud hosting behind Amazon Web Services. Back in December, the two announced a sweeping alliance. Adobe Experience Cloud and Adobe Document Cloud integrate with Microsoft's Dynamics 365, Office 365, LinkedIn, and Azure cloud infrastructure services.
The move gives Adobe access to 180 million of Microsoft's commercial customers. Adobe has said it's getting a "phenomenal response" for the Microsoft integration.
Tech Wealth Rule No. 2: Separate the Signal From the Noise
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
The market's wild panic over the spread of the coronavirus amid saturation media coverage hammered stocks across the board. Lost in all the noise is the fact that this is an incredibly well run firm.
It has pre-tax profit margins of 39% and the exact same figure for return on stockholders equity. Not only that, but it generates nearly $3.6 billion in free cash flow.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Earlier I noted that overall cloud sales are growing at 21.4% a year. At that rate they are doubling 3.4years. So, Adobe has focused on a market that is clearly part of a very long term trend.
The firms says that when you add up of all of its various services, its total addressable market will be $80 billion at the end of this year. That's actually more impressive than it sounds.
Back in 2009, it had zero cloud sales. Last year, revenue totaled nearly $11.2 billion, much of it focused on the cloud.
Tech Wealth Rule No. 4: Focus on Growth
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.
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