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Does Cloudflare Have What it Takes to be a Hold?

Real Money's Tim Collins says the stock could be right for the times we're in.
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To hold, or not to hold.

That is the question for investors looking to up their game.

Many, if not most, retail investors look at the market exclusively through the lens of capital gains. They analyze stocks based on price; buy low, sell high, build the portfolio. And this isn’t wrong! However it also isn’t complete. There’s much more that you can do with a stock beyond simply trading it. After all, if that was the limit of a stock’s value, it would be functionally indistinguishable from a baseball card (or the arguably superior cards published by Hasbro’s HAS Magic the Gathering ).

Tim Collins recently worked through the question of holding on Real Money. “We are now in limbo between the 50-day simple moving average (SMA) and 200-day SMA on many major indexes,” he wrote. “That's not a great place to live. Bad things happen under the 50-day SMA. Really bad things happen under the 200-day SMA.”

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Given that environment, “If you're looking to buy a purgatory name, I'd put Cloudflare  (NET) - Get Cloudflare Inc Class A Report on the list. First, you likely want something you're willing to not just trade but also to own. Edge computing has seen a huge increase in demand over the past few years. As more and more of our lives and economy move online, the demand for speed will only increase.”

Edge computing is the process of building computer infrastructure (servers and data storage) physically closer to the consumers using it. So, for example, instead of keeping all of your servers in one Seattle-area location, you would locate some near Austin and Chicago and New York.

You don’t notice a 0.001 second delay when attaching a Word document to that email. But a 0.001 second delay every second while trying to watch something on Netflix? That adds up. And it’s what has so far held back streaming video game projects like Google’s Stadia.

Collins adds “Additionally, the ability for businesses to regionalize in terms of offerings and products continues to grow. Edge computing gives them this ability plus the ability to instantly update portions of their apps or website all over the world."

To be sure there are concerns that Amazon  (AMZN) - Get Amazon.com, Inc. Report is targeting the space. And Cloudflare’s valuation is “aggressive on a fundamental basis. Still, I could see Amazon or even Apple eventually taking over this company. The deeper push into cybersecurity appears to be a natural fit as well,” Collins wrote.

Get more trading strategies and investing insights from the contributors on Real Money.