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Clearing the cloudiness surrounding cloud computing

Dear Mr. Berko: Please explain cloud computing. And what do you think of cloud computing stocks like Salesforce.com?

I am thinking of buying 100 shares at its current $140 price because I heard it may be a takeover candidate and lots of brokerages recommend it. What do you think?

–P.L., Vancouver, Wash.

Dear P.L.: All of us own lots of things that we have in files, boxes, albums, CDs, folders, etc.

Well, in the future, we may not have physical possession, and they will simply reside in “the cloud.” Our computers have hard drives on which we store all sorts of stuff, and software is burned into a DVD or a CD that can always be installed when we need it.

But that’s changing. Soon, when you turn on your Apple, Dell or HP, the Internet will be built into your operating system. So when you click on an icon, it will open a portal somewhere in an Internet cloud. And in this virtual world, you can access anything from anywhere, anytime, with any hand-held device. But you won’t own it, and it will be disposable.

The National Institute of Standards and Technology — one of the myriad ridiculously overstaffed, absurdly redundant and risibly overfunded government agencies — defines cloud computing as “on-demand network access to a shared pool of configurable computing resources.” However, the tech geek who maintains my server tells me that cloud computing is the dumping of the stuff that’s a pain in the neck and unproductive into someone else’s storage device who gets paid for handling the irritation and annoyances.

Firms like Salesforce.com (CRM, $142), Riverbed Technology (RVBD, $41), Acme Packet (APKT, $76), NVIDIA (NVDA, $24) and Concur Technologies (CNQR, $56) provide software and visual technologies that generate interactive graphics; provide storage infrastructure; support operating systems and application environments; permit users to store, share, analyze and track customer data; and aggregate multiple servers into shared pools of capacity, etc., ad nauseam and so on.

CPAs or accountants can use TurboTax.com, with nothing to install on their computers, that includes all the new upgrades such as changes in deductions, IRA rules, depreciation numbers, etc., for an annual fee. And for an annual fee, Macy’s or Nordstrom can use cloud-based programs by CRM to analyze sales force or customer service efficiency. Or GM or Ford can use the cloud to improve engine functions. Or Merck and Novartis can use the cloud to less expensively and more rapidly design new drugs.

Meanwhile, you have to be industrial-strength dumb to buy 100 shares of Salesforce.com, and I don’t give a hog’s breath or bounce what Credit Suisse, Ford Investor Services, Standard & Poor’s or Bank of America tell you. This piece of junk is so pathetically overpriced that only Congress would be dumb enough to buy it. With expected earnings of $1.17 this year and $1.39 next year, CRM trades at more than 110 times earnings. Yes, revenues and earnings will grow, but that growth does not justify $142 per share.

So if ever I saw a bubble stock, CRM is riding right on the tippy top.

And so, too, are many cloud computing stocks, which will soon come crashing like a huge Steinway plunging down a deep mine shaft. Companies with that kind of gold rush fervor and ridiculous ratios are a pox on the stock market, an affront to common sense and testimony to the cupidity of the institutions that recommend the stock.

However, Quest Software (QSFT, $26.12), with $820 million in revenues and 2011 earnings of $1.42, looks like a genuine company.

QSFT has been in this business 25 years, trades at 18 times earnings and some observers believe QSFT may be a potential takeover candidate by Oracle, Adobe or EMC.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.

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