Invest in Great Growth Stocks Now
10 Stocks to Hold Forever - Part Seven
Thirteen years ago, all my hair was dark.
Thirteen years ago, I didn't wear glasses.
Thirteen years ago, I could eat my wife's homemade chocolate
and not gain a pound.
And thirteen years ago was the last time investors were really
excited about investing in the stock market.
So it makes sense that even though the market has done THIS in
the past 12 weeks …
… no one is excited!
Because a lot of changes have occurred over the past 13
The stock market has been so challenging over the past 13 years
that investors have learned to treat these bursts of strength as
selling opportunities. They've had all long-term bullishness
conditioned out of them!
Furthermore, because we've been through numerous economic trials
in the past 13 years, almost everyone is less optimistic about the
So why is the market going up? Because professional investors
see opportunity. Because professional investors see value. And
because professional investors know it's better to buy early than
Some of these professionals have noted the market's recent
Others have noted a "Breadth Thrust."
Still others have noted a "Blast-Off Indicator."
The message from these three signals (and others) is clear.
Money is pouring back into the market at an unexpectedly rapid
rate, and it is likely to continue far longer than the vast
majority of today's investors expect.
(One major long-term reason, which I won't get into here, is
that there is a ton of money sitting in so-called "safe" havens
like cash and bonds. But rising interest rates-and thus falling
bond prices, combined with a less-gloomy global outlook, have begun
to nudge some of that pile of money back into stocks. And the trend
has only begun.)
So I'm bullish, and I urge you to invest in great growth stocks
now, before all your friends do.
You'll find one contender below.
In recent weeks, I've been writing a series called "
Ten Stocks to Hold Forever
," featuring 10 stocks, selected by Cabot editors, that you might
choose to, well, "hold forever."
The seventh stock is
, and it was selected by Mike Cintolo, editor of
Cabot Market Letter
Cabot Top Ten Trader.
Unusually, Mike has not found an opportunity to do a large
write-up on CRM; he only added the stock to his model portfolio in
mid-December. The stock is up 7% since then.
Just yesterday, however, he did write this:
"Salesforce.com is off to a good start for us, leaping out of
its two-year base this week on good volume. We've written about the
company often during the past year; its various business software
products boost productivity and are winning more and more big deals
than ever before. We see this as an institutional-quality stock
with years of rapid growth ahead of it ... just the kind of name
that big investors can pile into, especially if the economy picks
up steam. We think you can buy some around here."
So here's my additional input.
Salesforce, as most businesspeople know, provides applications
that enable marketers and salespeople to organize their prospects,
plan marketing campaigns, track their results and more. It's useful
in virtually all industries.
Previously labeled software-as-a-service, now it's a major
player in the Cloud. It works great on mobile devices. And because
users pay on a recurring basis, repeat business is especially
The company had almost $3 billion in revenues in the past 12
months, and revenues are growing at a better-than-30% rate, fairly
consistently. Earnings growth is less regular, because of
investments and acquisitions, but it is clearly up. In 2012, the
company earned $1.40 a share. For 2013, analysts are estimating
$1.52. It's probably conservative. Finally, after-tax profit
margins are healthy, ranging between 6% and 10% in recent
That's low for a software company, but it reflects both the
investment in growth and the fact that revenues come in a steady
stream rather than in big chunks.
In sum, Salesforce is king of the hill in its industry, and
there's no one on the horizon that looks capable of altering that,
so profit growth looks exceptionally reliable.
And that's why you could hold CRM forever.
But you don't have to. In fact, I recommended CRM in Cabot Stock
of the Month (the advisory I edit) back in August of 2009 when it
was trading at 52. It did very well, and I recommended selling in
September 2010 at 112 for profit of 113%. Those who held now have a
profit of 227%.
Finally, a word about valuation. CRM has a P/E ratio of 111, and
that will seem high to some people.
But back in October 2009, after I recommended CRM as the
Cabot Stock of the Month
, I received the following email from a Dr. Walker in North Dakota.
(It's amazing the stuff that my computer saves!)
"I was considering acquiring some new stock in Salesforce.com (
) as per the 'Stock of the Month' recommendation. I noticed that
the Price/Earnings ratio is rather high at 110. In my very
beginners understanding, that seems to me a bit of a mini
"stock-bubble," where the price of the stock has far surpassed the
company's actual/current earning power. I also do understand that
this P/E ratio is a way of assessing "value" and that this high
number means it is definitely NOT a 'blue chip stock.'
Nevertheless, it gives me some cause for concern."
So here we are more than three years later, with CRM up 227%,
and its P/E is virtually unchanged! In general, it's a great
reminder that P/E has little value for growth-oriented
Admittedly, CRM is different; One factor in its high P/E is the
revenue structure. It makes earnings look lower now, but adds more
certainty about the future. And that's not going to change, so
there's no reason to worry about the P/E.
So I recommend investing in CRM for the short-term, and then
contemplating holding for the really long-term.
Yours in pursuit of wisdom and wealth,
Cabot Stock of the Month