You don't get to be crowned a cloud king for nothing. The results for the companies that we have endowed regal characteristics for doing the most to digitize the world are nothing short of staggering and in every case it has been worth it so buy them while they are down.
Tonight, Workday (WDAY) , the company that has done so much to put human resources and financial management onto the cloud, saving companies millions and millions of dollars, reports and while I can't ask you to ignore the near-term results - no company gets that kind of free pass - the evidence points to buying not selling on any weakness, because of the history of the company and the theory I have about this agglomeration of businesses as a whole.
If you recall, we anointed seven dominant exploiters of the voracious need to harness the web and profit from it. I think it is worth it to put them in total perspective given how well they have done.
I want to write about them now not just because Workday is reporting, but because September is typically a very tough month, a month where there are general selling bouts, some related to the usual issues specific for now - tariffs and trade - but also, far more demonstrative, the selling that mutual funds tend to do to get a jump on their October fiscal year end. Perhaps more important, at least psychologically, there is a fear of October that causes many of the best performing stocks to endure a sell-off and the consistency of these stocks pretty much makes them prime targets for buying after they decline. Of course, we never know when a plummet will cease. We do know, though, that what bounces back first are stocks with terrific long-term prospects related to a giant theme that cannot be kept down by tariffs, trade or economic sluggishness that so many fear of barriers are thrown up against European countries, Canada and China all at once.
The growth is just too torrid to be stopped by politics. What makes the stocks I am about to tell you about so likely to bounce back? Because they involve the number one theme of all enterprises large and small, cloud adoption to bring down costs, get their data more accessible, improve relations with customers and potential customers make workflow more efficient and mine data so make their clients more competitive.
One last thought before we go specific. The seven cloud kings, Adobe (ADBE) , Red Hat (RHT) , Salesforce.com (CRM) , ServiceNow (NOW) , Splunk (SPLK) , VMware (WMW) and Workday, have advanced cumulatively, have trounced the S&P 500 on a five year, three year, one year and year to date basis that is so stark that you should be wondering why you don't own one or two in your portfolio. We only own one for Action Alerts PLUS, Salesforce, because we are FANG heavy with Amazon (AMZN) our biggest position. But it shouldn't stop us if any of them came down enough to take a stab at a starter position.
Let's go alphabetical and start with Adobe. Here's a company that so many still think is just a publishing business because of Acrobat, Photoshop and Flash, all money makers. But you should be thinking of it as a digital business, one that empowers companies to present their wares in a way that is cloud-friendly and illustrates and manages their commerce. CEO Shantanu Narayen has a vision that all companies need a cloud strategy for their marketing. As their website shows, in part, Adobe helps you answer three critical questions: "I need to know what my customers are doing in real time, I can't identify my most profitable customers and I'm struggling to gain a holistic view of my customers." How universal is that need? How about a retailer that has to go up against Amazon? Adobe's numbers: 476% five year v. 77% S&P, 235% 3 year v. 47% three year, 69% one year v. 17% and 50% this year versus 8%. It's a first round pick no matter what.
Second, Red Hat, is more problematic, if being up only 23% this year versus 8% in the S&P. Red Hat is an enabler, a subscription business that I boil down to helping an enterprise on board the cloud more efficiently with service revenue more important than any soup to nuts business. Red Hat's done so well over the years, 192% v. 77% in a five year time, 104% v. 47% for three years, and 37% versus 17% one year and 23% year to date v. 8%, that it is hard to believe almost every quarter has been contested as a weaker -than-expected-one by the chattering analyst class. The last quarter was typical: it fell from 176% down to $132, but now it is slowly working its way back and has gotten to $147. It's still low enough to buy before its September 19th results.
Salesforce.com had a ridiculously strong quarter when it reported last week, with $21 billon in what's now known as Remaining Performance Obligations, formerly known as future revenues under contract. I think the newness of the term, the conservative nature of the guidance after shooting the lights out of its current guidance and the 13% August run, threw people off the scent of an incredible book of business. In three weeks we will be at Dreamforce time, though, and I believe you would be smart to pick some up ahead of the biggest tech event in the world. Obviously given its 210% five year, 120% three year, 59% one year and 49% gain year to date, it's been right to buy on weakness. I can almost say it deserved to sell-off, it's just been too hot.
ServiceNow is the most hidden of the cloud kings because it's about automation of records and workflow, basically making an enterprise work more smoothly by keeping records of all contacts and interactions both within and outside the operation. I thought it might skip a beat after gaining 318% in five years, 17% in three years and 69% in one year but this year when Frank Slootman retired last year. Wrong! John Donahoe, late of eBay (EBAY) has done a magnificent job, and made the company even more "customer facing", Silicon Valley gibberish for making it friendlier to clients. The stock's on fire. I think its come too far to chase for now.
Splunk? What can I say. The company that enables an organization "to get answers from their data without having us know all the questions to ask beforehand" has become integral for companies to compete against others in their field. Not to simplify but once again, if I were running a retailer and I wanted to beat Amazon - as so many are doing these days - I don't think I could do it without Doug Merritt and his team. Now, here's why we call 'em kings: do you know that the last quarter before Splunk's most recent one, was widely panned as being light. Again, I thought that stupefying, a terrible way to look at an enterprise with a business that is simply indispensable. It should therefore not have been a shock when it just trounced the numbers last week. Kings bounce back. That's how Splunk's stock has rallied 132% in five years, 106% in three years, been 91% in one year and 54% this year. Has your time to buy it passed? Right now, yes. You had to be in before this quarter. Now you have to wait for a broader sell-off to buy.
If you had to ask me which king could be bought right now without hesitation it would be VMware, and I write that not just because the COO, Sanjay Poonen said on 'Mad Money" that I should call these stocks Cramer Cloud Kings because he didn't want me to lose bragging rights like I did when we created FANG. I like this company because it is a crucial and lowest cost way to make your company entirely digital AND allow it to onboard to Amazon web services as well as the other providers. It's the weakest of the cloud king performers, up 82%, 93%, 41% and 22% over a five, three, one and year to date basis - still trouncing the averages, though - even as, in many ways, it has the greatest growth prospects. I think it is because it has a convoluted ownership given its lineage: Dell bought EMC which owned most of VMware and there is a belief that at some point Dell will cram down the company's shares. I think that's wrong. That's why I consider it a buy.
These are all strong companies riding a giant secular wave that's still early despite many a doubter. When you hear buy on weakness, you need to think these stocks. They are anointed not for now, not until the end of the year, but for years to come.