In the Clouds for New Highs

I have one word for you: KISS.

No, not the band.

Rather, the acronym for “Keep it simple, stupid.”

In investing, simple is hard to beat.

And there’s nothing simpler than focusing on great companies that are increasing revenue and earnings at a double-digit pace. Regardless of how exciting that company’s industry may or may not be.

More often than not, the KISS approach to investing pays off.

Because, eventually, shares must ultimately follow earnings and revenue. And right now, we’re watching this play out as one of our positions that lagged its peers in 2019 – despite solid results – soars to new heights.

Salesforce (NYSE: CRM) shares are in the clouds. And we couldn’t be happier!

On Tuesday, shares of the cloud-based enterprise and customer relationship management software provider rocketed to a new 52-week high of $176.60.

Admittedly, part of the move was fueled by a broader demand for cloud and cybersecurity stocks in the wake of boiling tensions between the U.S. and Iran.

But the real trigger is that the rest of Wall Street is starting to realize what we already know. In fact, just days ago, RBC Capital named Salesforce its No. 1 pick for 2020 and increased its price target from $200 to $215.

That’s a 22% gain from where shares are currently trading.

The recent optimism from RBC is also part of a larger shift in outlook from Salesforce by Wall Street. Currently, 43 analysts cover the company. And of those, 40 have “Buy” ratings on shares with an average price target of $191.08.

So Salesforce is revving up for a major run in the year ahead.

Now, some analysts thought that in 2019, Salesforce was left out of the broader tech stock rally. That’s despite the fact shares bounded 20% higher.

They’re quick to point out the performance lagged the Nasdaq’s 36% gain last year, as well as some of the impressive moves we saw from large cap tech stocks.

But in recent weeks, Salesforce shares seem to be making up for lost time.

Over the past month, shares have more than doubled the performance of the Nasdaq and have torched the Dow Jones Industrial Average and S&P 500 Index.

The fire was first stoked back in December. And the kindling was a perfect KISS-type moment.

We knew that Salesforce’s business would eventually begin firing on all cylinders. We just had to wait for Wall Street to wake up to this fact.

For its third quarter, Salesforce reported $4.51 billion in revenue with earnings per share of $0.75. Its Sales Cloud segment was the biggest contributor with $1.17 billion in revenue. And its Service Cloud division saw revenue jump 24.5% to $1.14 billion.

The initial reactions to the results were a little sour. But the outlook has sweetened since.

For the fourth quarter, we’re expecting Salesforce’s revenue to soar 31.9% to $4.75 billion. Plus, for full-year 2020 and 2021, the automation leader is projected to see revenue increase more than 23%.

Yes, we target cutting-edge technologies, emerging multibillion-dollar industries and revolutionary innovations that are reshaping the world.

Salesforce is part of that – a key Fourth Industrial Revolution provider for business.

But revenue is also charging higher at a robust pace as earnings are increasing. A perfect blend of KISS analysis with a dash of cutting-edge technology.

Strategic Takeaways

• Compass Diversified Holdings (NYSE: CODI) declared a fourth quarter distribution for its C shares of $0.38281. This is a slight step up from the $0.36 it paid in the third quarter. That also means we’ll be enjoying nearly a 6% dividend yield.
• GeoPark Ltd. (NYSE: GPRK) announced that in the fourth quarter its consolidated oil and gas production increased 8% to 41,786 barrels of oil equivalent per day. Its Chilean assets saw the biggest gains, increasing 17%. The Latin America producer drilled 36 wells in 2019 with a more than 85% success rate. For the first quarter of 2020, it plans to drill nine exploratory wells.
• Energy and precious metals aren’t the only sectors popping on escalating U.S.-Iran tensions. Shares of defense contractors have also caught fire, including our shares of Mercury Systems (Nasdaq: MRCY). Any prolonged standoff or uncertainty will continue to buoy defense and energy.

Here’s to high returns,

Matthew