Cloud stocks have been interesting because there is such a large disparity in performance. While some have held up moderately well, others have been absolutely decimated.
Regardless of growth (for the most part), tech stocks have struggled mightily. In fact, the higher growth they have, the worse many have done. However, like other secular industries out there, the cloud also seems to have years worth of growth left in the pipeline.
That’s as more data continues to be created and done so at an exponential rate. Whether it’s social media or self-driving cars, businesses and entire industries are leaning on the cloud. That’s resulted in all sorts of businesses — like private cloud, central cloud, the edge cloud, etc. — and will likely continue creating new businesses going forward.
For this list though, let’s look at some well-known cloud-based stocks that could see a rebound in 2022.
Cloud Stocks to Buy: Amazon (AMZN)
While Amazon’s e-commerce business has ballooned into its most well-known entity, it’s not the profit center that Amazon Web Services (AWS) is. The company’s cloud business generates substantial top- and bottom-line growth and is one of the biggest reasons Amazon has ballooned to a $1.75 trillion company.
It’s been an incredibly mixed year for Amazon, as the stock now works on its sixth monthly decline of 2021. At its high, AMZN stock was up 15.8% for the year and at its low, shares were down 11.5%. But currently, it’s up about 4% for 2021.
In other words? Mixed.
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Further, Amazon is the worst-performing FAANG component this year, with the next worst holding — Netflix (NASDAQ:NFLX) — up 13.5%. That’s not the type of performance bulls have come to expect. However, that may change in 2022.
Just look at the prior stretch before 2020. Shares consolidated for almost two years before breaking out to the upside. Currently, Amazon stock has been consolidating since the summer of 2020, or about one-and-a-half years.
On the plus side, it continues to ride its 50-week moving average, while analysts expect about 22% revenue growth this year. In 2022 and 2023, those estimates sit at roughly 17.5% a year.
The market can only keep a stock like Amazon down for so long when it continues to grow like this.
Adobe Systems (ADBE)
Adobe Systems has somewhat quietly become a cloud king over the last few years. While it’s got a solid cloud-based subscription business for digital professionals, it also has its hands in a chunk of U.S. e-commerce activity.
Because of its quiet rise, Adobe’s been able to stay under the radar, unlike some of its peers. However, its dominance has allowed it to achieve a market cap of $270 billion.
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Just before Thanksgiving, Adobe was up about 40% on the year, hitting new highs of roughly $700 a share and commanding a market cap of $325 billion.
However, this past month has not been kind to Adobe. Shares were down about 10% ahead of earnings and despite the recent bounce, are now down 20% from the high. For the year, shares are up just 13% and lagging the S&P 500 index and Nasdaq Composite index overall.
So why do I think 2022 will be better, for cloud stocks and Adobe specifically?
For starters, Adobe stock is a great performer and a great company. I think it can continue to chug higher and $650-plus a share shouldn’t be out of the question.
Additionally, analysts are forecasting an acceleration in both earnings and revenue next year. Despite the recent quarterly disappointment, analysts expect revenue growth to rise to 15% in 2022 from 13.7% this year, and for earnings growth to rise to 17.5% next year from 10% this year.
Cloud Stocks to Buy: Cloudflare (NET)
Working our way from largest to smallest, that brings us to Cloudflare (NYSE:NET), which has a market cap of “just” $44 billion.
While the bear market in growth stocks started a while ago, it looked like Adobe and Cloudflare were going to sidestep the selloff. However, the selling pressure eventually caught up to these stocks.
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Cloudflare hit a new high in mid-November, but four straight weekly declines later and NET stock suddenly found itself down 44%. However, this one has a lot going on.
Consensus expectations call for about 50% revenue growth this year. That’s followed by estimates calling 37% growth for 2022 and 32% growth in 2023. Driving that revenue is growth on the edge cloud.
While Cloudflare isn’t as well established as Amazon or Adobe, the secular trend certainly favors its business. And although it will have larger moves and a wider range, the discount in the share price could bode well for more aggressive investors next year.
Admittedly, Cloudflare has a very rich valuation after the recent run and may have a bit more downside. However, if we can get a stab at this one in the $100 to $110 range, it may be worth a shot.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
