Sell Salesforce.com; Buy VMware & Schlumberger: Opinion

NEW YORK (TheStreet) -- "Cloud computing" has become the buzzword on the stock market, boosting valuations of companies that even hint that they specialize in this area.

This includes companies such as Salesforce.com (CRM) that have no business trading at such expensive levels.

On the flip side, there are value plays such as Microsoft (MSFT) and Oracle (ORCL), which are both dominant cloud names.

All of this demonstrates that neither investors nor analysts have a good understanding of what cloud companies are or how to value them.

Typically, people say that growth has to trump value. But it does not have to be one or the other -- it can be both.

Buy VMware and Sell Salesforce

One of the few cloud names that is both a growth and a value story is VMware (VMW), a stock that offers as much growth potential as Salesforce.com with much less risk. VMware is due to report it second-quarter earnings on Monday after the market closes, and Wall Street is expecting another solid quarter.

In its first-quarter report, VMware beat the Street's expectations for both profits and revenue. This was attributable to improving demand for cloud services.

The company reported an increase in revenue of 25% to $1.06 billion as well as a 15% increase in license revenue from the same period a year ago.

As great as these increases were, what was even more remarkable was that its operating margin for the quarter was more than 32% on a non-GAAP basis, and the company logged an impressive 53% increase in trailing free cash flow to $2.1 billion.

What these results tell me is that corporate customers continue to demonstrate their trust and loyalty to VMware's offerings when it comes to databases, ERP systems, email and collaboration systems.

What also sets it apart from Salesforce.com is that the company also provides clients with flexibility and portability to move applications between clouds without rewriting them -- from private to public clouds and back.

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