Investment SuggestionsCasey Gambuti – 4/20/11

Market Outlook

Intel and IBM’s increased earnings provide optimism – especially in the Tech sector

S&P negative outlook on U.S. Credit ratings doesn’t change the facts

Japan Crisis SettlingInflation – may hurt equities in the short

term, but in the long term stocks should adjust for inflation

Employment improved in most states

Buy Google (GOOG)

Market Cap: $168 Bil.Search/Advertising

◦ Competes with: Yahoo! and Microsoft

Mobile OS◦ Competes with Apple and

RIMMajor internet presenceExpanding into TV,

Browser, Cloud Computing, Internet Services

Google Q1 Earnings

Revenue ahead of estimatesHigh Operating Expenses caused less than

expected Profit Investment for growth◦Investment for growth◦High demand for employees also costly for

other tech companiesShares dropped over 8%

Android

Android consistently gains market share from Apple and RIM

350K activations per day

Android

Google has underperformed the two companies, despite stealing their market share

Increased Ad Revenue

Shows Facebook, Yahoo, Microsoft have stopped gaining on Google

Google will remain a strong competitor in its original business

Google’s P/E History

Google’s much cheaper than it has been in the past

GoogleCurrent

Google Prior to Crisis

Google in 2004

Tech Sector

Average

P/E 19 50 150 25

Buy Google

Google is very valuable compared to rest of Tech Sector

Cost of employment should rise in other software companies as well

Regaining strength in its basic business – search/advertising

Positioned for growth with android◦Tablets◦Mobile Payments◦Possible iTunes alternative or cloud based music

player

Sell salesforce.com (CRM)

Market Cap: $18 BillionEnterprise cloud computing

applicationsCustomer and Collaboration

Relationship Management (CRM) 

Very Expensive stock (P/E:277)

Main Competitors: Oracle, SAP, among others

Cloud Computing Bubble?

Earlier this year a UBS research note suggests there is a cloud computing bubble similar to the dot com bubble◦Overall P/E’s not quite to that level yet, but the

industry is becoming highly priced

Salesforce Oracle SAP IndustryPrice/Earnings 277 22 30 19

Salesforce.com’s Price

CRM P/E is 14.5 times the industry average If value were to revert to average, earnings would have to

increase by 1450% to $4.50 per share from $.31 per share

Salesforce Oracle SAP

Quarterly Earnings

Growth (yoy):

-46.5% 78% -36.2%

Total Cash $497Million $24 Billion $5 Billion

Current Ratio .84 2.88 1.39

Salesforce seems to have

Less growth potential than

Its competitors.

M&As in Cloud Computing

Big Tech Companies like to takeover startups/small caps with growth potential

Speculation about a takeover of CRM has faded due to its high price

Oracle boosted position in Cloud Computing by acquisition of Sun Microsystems

Any new M&As will hurt Salesforce

Summary

Long

Trading at historically valuable price

Growth potential into to businesses mainly Android OS

Short

Extremely high priced company in already pricey industry

Not likely to grow as much as its P/E would indicate it should live

up to

Take Both Positions for a safe tech sector neutral bet!