Sunshine in the Clouds

NEW YORK ( TheStreet) -- You can bet that when "the cloud" shows up in consumer advertising, as in the Microsoft ( MSFT) ads that say, "To the cloud...," it's just the tip of the iceberg. For years software firms have been using cloud-based architecture to enhance computing and reduce costs.

But it's reached a tipping point of sorts, and the projections are getting that "hockey stick" quality that investors know and love. For instance, according to a March 2012 International Data Corporation study, the cloud computing sector will generate approximately 14 million new jobs and $1.1 trillion in profits by the year 2015.

Mind you, that date is just around the corner. We should all be mindful, too, of the fact that the IDC report was sponsored by Microsoft, which has a vested interest in promoting the cloud business.

Still, if we only get part of the way there, I'll be a happy investor. As I've written many times, companies at the forefront of innovation and new technologies -- even if they are decidedly non-tech such as food manufacturers or retailers -- tend to have a significantly higher returns than the market average. Accordingly, we like and own VMware ( VMW) and Citrix Systems ( CTXS), two of the smaller and more aggressive names in the space.

Further, IBM ( IBM), Oracle ( ORCL) and Microsoft are growing their cloud business. Companies such as these present an opportunity and a risk as well.

As "older" technology companies, they grew up on older, in situ, computing. This legacy business is lucrative and evolving. Therefore, they must balance the needs of existing and profitable customers while developing cloud solutions for these and new customers to grow into.

It's a tricky balancing act, but Oracle has been doing it very well, and shareholders have been rewarded with a year-to-date return on ORCL shares of approximately 26%.

However, there are risks, too. As Canaccord Genuity software analyst Richard Davis said following the most recent earnings report, "We still struggle with the future impact of the 300 or so private cloud companies that we know, almost all of which are aiming at Oracle."

Below is a list of several cloud-based SaaS companies, or Software as a Service, a popular approach for investors to access the investment opportunities in the cloud.

Parenthetically, this will be my last column until the new year. Given the impending holidays, I thought I might share a few factoids from my good friends at ParenteBeard about the financials of Santa, Inc. Since they are accountants and consultants, they dutifully and diligently footnoted all their estimates with data from credible third parties. But why spoil the fun? Here are a few of the more notable pearls:

Gift Production: $39.5 billion. With approximately 526 million children under the age of 14 who celebrate Christmas, it would cost Santa, Inc. roughly $39.5 billion to make one gift valued at $75 for every child.

Elfin Salaries: $2 billion. ParenteBeard found the average toymaker salary is $35,859. Due to Santa's kindhearted spirit, the firm estimated that he pays elves $40,000 a year. With 50,000 elves, Santa's yearly elf payroll would be roughly $2 billion.

Health Benefits: $773 million. An average health plan for an employer as big as Santa, Inc. is $15,475 per employee, meaning Santa's annual healthcare costs are roughly $773 million.

Reindeer Costs: $54,000

With an average cost of $6,000 a year per reindeer, Santa would pay $54,000 a year to keep his nine reindeer healthy for their yearly December world trip.

Curiously missing in the ParenteBeard cost analysis were legal fees. With all those toys out there, product liability defense must be enormous. The risk management group has suggested enlarging the Island of Misfit Toys to cut down on delivery of toys known, thought or possibly to be construed to be defective.

At the time of publication the author had positions in CTXS and VMW.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Oliver Pursche is President of Gary Goldberg Financial Services, a boutique money management firm located in Suffern, NY. Additionally, Mr. Pursche is the Co-Portfolio Manager for the GMG Defensive Beta Fund, and a Founding Partner of Montebello Partners, llc. In his role as President of GGFS, and as a member of the GGFS Investment Committee, Mr. Pursche helps oversee the investment portfolio of over 2000 clients with over $500 million dollars in assets. Mr. Pursche frequently provides market and economic commentary on CNBC and Fox Business News, as well as often being interviewed by The Financial Times, US News and World Report, Thomson Reuters, Bloomberg Businessweek, and the Associated Press regarding his and the firms views on the latest market news and events. Mr. Pursche's views on the market and investment strategies have been featured in the Wall Street Journal, Investors Business Daily, Smart Money, USA Today and other national business publications. In addition to writing for TheStreet.com, he is also a weekly contributor on Forbes.com and BankRate.com. His daily market commentary can be read at www.betafundcommentary.com or you can listen to him on www.financialtalkshow.com weekdays at 10:00 AM.

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