Tech investor Paul Meeks buys Salesforce on the dip

Published Wed, Oct 5 20163:41 PM EDT

I'm always on the lookout to buy shares of cloud computing leaders at reasonable prices. In my Platinum Portfolio , I've owned cloud powerhouses Amazon.com ( AMZN ), Alphabet ( GOOGL ) and Microsoft ( MSFT ). I recently sold AMZN at a big profit, but, frankly, I unloaded it too soon. I still hold GOOGL. Since I had too much cash in my model portfolio after selling NXP Semiconductors ( NXPI ) last week after the stock vaulted +26 percent on rumors of a potential acquisition by QUALCOMM ( QCOM ), I decided to put some of that money to work. Despite risks, which I'll highlight next, I'm making a bet on Salesforce.com ( CRM ). The company pioneered Software as a Service (SaaS), which is among the flavors of cloud computing with Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). The stock is down 7 percent today (October 5) and it has been hammered more than 20 percent since May. There are two key things amiss at CRM that I'm well aware of and am hoping that they're fully reflected in the firm's stock price. First, the company's last quarter was a dud, at least in relative terms. This historically fast-growth company — its non-GAAP, diluted earnings per share has compounded at 23 percent over the past five years — slowed a bit and other key financial metrics disappointed Street analysts. There's not much margin for error for a stock that still trades at 72 times this fiscal year's (January 2017) earnings. Is this company and the market it serves too mature to flourish? Everyone knows CRM's other issue. CEO Marc Benioff is on an acquisition spree, which may tell us that he's concerned that his company is slowing in its traditional market. He has skin in the game with 35.0 million shares worth $2.4 billion. Since the summer began, CRM has spent at least $4.4 billion on acquisitions. Benioff even went after LinkedIn ( LNKD ), which MSFT won in June with a $26.2 billion bid. CRM's market capitalization "only" is $45.6 billion and it has $2.5 billion in debt offset by "only" $1.2 billion cash. A LNKD deal may have pushed the acquirer too far. However, CRM's M & A worry du jour is its rumored Twitter ( TWTR ) purchase. CRM's shareholders have voted. The potential acquirer's shares have been bludgeoned as shown above. The market is screaming, "Marc, don't do it!" I hope that he listens and walks away from Twitter. Furthermore, as is often the case with volatile technology stocks, I believe that even if Salesforce buys Twitter, shares of the former company have already overcorrected for the risk. Its valuation pendulum may have swung too far with fears about CRM's dealmaking. There you have it. I'm investing my spare cash in an SaaS cloud leader with its shares down more than 20 percent in a few months. I think there's still ample runway in CRM's enterprise software business. I expect growth to reaccelerate there. Sure, I'm worried about a potential TWTR acquisition, which, frankly could even already be in the works. But for now, Salesforce's stock seems like a buy. Disclosure: Paul Meeks owns shares of Signature Bank in his personal accounts in real life. He doesn't own Twitter, Salesforce or any other of the stocks mentioned in this report. Paul Meeks is a technology investor and member of the "Squawk Box" Platinum Portfolio competition for CNBC PRO.

Salesforce

Robert Galbraith | Reuters

Since I had too much cash in my model portfolio after selling NXP Semiconductors (NXPI) last week after the stock vaulted +26 percent on rumors of a potential acquisition by QUALCOMM (QCOM), I decided to put some of that money to work.