Salesforce.com provides cloud computing and customer relationship management (CRM) software applications to businesses worldwide. I assume the title of this blog post gives away that I am bullish on the stock (ticker symbol: $CRM), so let’s jump into the reasons why:
1) Strong fundamentals. The company has achieved 30-40% year-over-year revenue growth in each quarter over the past 2 years. I am expecting strong earnings growth to continue as well.
2) Strong technicals. The Daily and longer-term Weekly charts are showing strong institutional accumulation. The stock is approaching its all-time high of $164.75.
3) Highly shorted. Everyone HATES this company. Why? Mainly because of its high PE (which is absolutely the dumbest reason to short a stock in my opinion). When you click on this link from Nasdaq.com, you will see the short interest has increased recently. If the market continues to cooperate, a short squeeze could help force the stock higher.
4) Marc Benioff. The company’s founder and CEO is a genius. After talking to many people who work for him, they all say the same thing: He is a TRUE leader, a generous philanthropist, and he is VERY passionate about his life and his company.
5) Options market. My good friend Joe Kunkle (@OptionsHawk) runs a tremendous premium service that I subscribe to for tracking large option trades in the market. On 12/4/12, he posted: “Salesforce.com (CRM) large opening buy of 2,000 January 2014 $155 calls at $26.10, more than $6M in call premium bought today with the trade. CRM shares are forming a bullish consolidation below $162.50 resistance, and are still fairly cheap on valuation when looking at company specific metrics, so a move to $200+ is not out of the question.” Again, I love when his work coincides with mine. It gives me more conviction when I know the “Big Boys” are on my side. I plan on doing a blog post in the future about how I use his service, but for now, definitely check it out.
Here is my suggested trade (the stock closed at 157 on 12/4/12):
For long-term players, suggested stop 140, 12-month target 220. 63 points of potential upside with 17 points of potential downside makes it a healthy 3.7R trade.
For medium-term swing traders, suggested stop 150, upside target 180, a 3.3R trade.
For shorter-term traders, suggested stop 154.5, upside target 165, a 3.2R trade.
One final note: I generally struggle with giving real-time trade ideas because I don’t know the reader’s time-frame, risk tolerance, financial objectives, etc. This is simply an idea. If it’s something you like, make sure to stick to your stop in case the stock turns against you. In interest of full disclosure, I currently have a position in the stock, but this could change at any time. After all, I’m a trader 🙂 Good luck!