It's hard to pick stocks in cloud computing, because so many of them have become absurdly overvalued. So what I do is look at a handful of them, learn about the companies, and try to figure out which ones have true staying power. Then you look for opportunities to buy them on pullbacks.

Riverbed is a company that I have been following for several years. I have published a profile of Riverbed here on my new site, Investor Uprising, in which I try to explain how Riverbed plans to expand. A true "best of breed" player in WAN optimization, Riverbed is now looking to use its leverage in that market to branch out and grow on more fronts. I had a chance to meet with several Riverbed executives at Interop in Las Vegas, and following those meetings I think the company is on the verge of taking it to the next nevel. CEO Jerry Kennelly very clearly described some growth opportunities for the company that will take it from a point-product company to a multifaceted networking power.

Here's the important thing about Riverbed: Its technology takes advantages of long-term trends in networking in computing: Data-center consoldiation, the migration of apps from the enterprise to the cloud, and outsourced networking optimization. If you are asking what this all means because it's too many buzzwords -- it's that large and small companies both are looking to outsource more of their technology and networking needs to service providers who operate in the "cloud" -- providing any application or computing online, at any time.

The reason this is important for Riverbed is because it flies in the face of what has built the existing networking juggernaut: Cisco Systems. Cisco is built on the emergence of Ethernet networks and IP routing. It comes from an era in which companies hired armies of IT people to configure and deploy Ethernet switches and routers. All of that is moving to the cloud and massive data centers run by service providers. The interesting thing here is that Cisco has displayed weakness in selling data-center products: Its software is aging and lacks the scale to handle the shift.

This is a profound shift and one to carefully watch in the networking space. On the valuation, Riverbed recently pulled back $10 from an all-time high and I used the opportunity to pick up some shares. The P/E is a palatable 30, given a growth rate in excess of 40%. The PEG is now 1.40, which is well of recent highs. You have to pay up for this company because it has such huge prospects.

(Disclosure: Long RVBD).

Wow. Cisco. Who would have thunk the stock would be back below $20 when the new bull market in technology is pushing many shares to new highs. CEO John Chambers is still smiling on TV, but you know he is seething behind the scenes.

Where to start... there are so many things wrong with Cisco right now I'm not sure what to pick first. On a technical market level, it's clear to me that Cisco shares are being sold on strength. Last week's puke-out  in which Cisco lost 20% of its market cap came on gigantic volume.

On a strategic level, Cisco is adrift and its M&A strategy has been flawed. It has focused far too much on video and consumer products and less on cloud-computing infrastructure. I have been writing about this on Enterprise Efficiency.Cisco was buying flip-cams and settop boxes when it should have been focused on the cloud.

RightNow (Nasdaq: RNOW), the best little technology company in Montana, today is powering to new all-time highs fueled by excitement about cloud applications and its recent success in garnering new customers and restructuring the company with a new COO.

The stock rose 1.54% today to $27.68, a new all-time high.

Scanning the news, it's hard to find anything particular that's driving the stock, unless you think a press release entitled "RightNow Helps Leading Consumer Brands Deliver Positive Customer Experiences and Drive Business Value." Nah.

I last wrote in detail about RightNow this summer when it was powering up its new applications strategy, which seems to be taking hold quite well. Since then, the company has also announced it recruited telecom veteran Wayne Huyard to be the new COO. The stock has more than doubled since the summer.

Right Now's riding the wave of a strong technology rally and also some excitement about cloud applications. It could also be an attractive takeover candicate for a larger cloud applications company such as Salesforce (NYSE: CRM).

Riverbed Technology, a company we've covered closely over the last year, is beefing up its clould services product portfolio in a bid to become the leader in cloud networking services.

Riverbed has been riding the cloud networking movement quite nicely. It sells a lot of gear that can be used by corporations and services providers to build cloud services. Now, it's doubling down. Today it introduced a product called Whitewater, which accelerates data connections to a cloud services, as well as Cloud Steelhead, a product that helps services providers build private cloud connectivity services with clients.

Well it's time for Markets Gone Wild, but you may not have the DVD, so let's recap: The Fed has been heavily telegraphing an accelerated money-printing schedule, driving bankers, traders, and speculators into all matter of commodities, stocks, and various exotic financial instruments.

Here's a summary:

* Silver reached a new 30-year high this morning. Incredibly bullish action. I think you should stay long silver here, a way to do that is SLV, or a mining company like Pan American Silver (PAAS), or silver futures. (Disclosure: I'm long all of the above). I've been bullish on silver for what seems like forever, and I remain so.

* Gold made a new high, and pulled back. With more money-printing on the way, it looks poised to break out, again.

* Our Riverbed/FFIV pairs trade worked out okay, in a strange way. F5 Networks (FFIV) has climbed 14% since we spotlighted the idea (we were short), but Riverbed (RVBD) is up 30% (we were long), so if you did the pairs long/short trade the difference has netted about 15%. Not bad for a month's work. The philosophy of this trade worked out okay -- the cloud "bubble" had pushed FFIV to a more unreasonalbe valuation, and it was time for Riverbed to catch up. (Disclosure: I am out of the trade, I think "cloud networking stocks" are getting overextended, though I still like Riverbed long term).

* New highs in stocks we like: EBIX, RVBD, PAAS

* Remember Right Now (RNOW)? Incredibly strong stock. Methinks something is up.

 

Yesterday I was invited onto CNBC to discuss "Cloud Computing," an incredibly broad topic that somehow got boiled down to four stocks, thanks to the magic of television.

The sector is getting a bit overheated and I have been working out some ideas on how to head and/or short selected stocks. Right now I'm focused on the networking stocks because some of them are getting quite overvalued. CNBC correctly asked me how one could possibly short such a hot sector to which my answer is: hedge.

Anyhow, you can see the clip below. There is also a recap on CNBC.com.

The idea I came up with is that you could hedge with a pairs trade. After sifting through some names and valuations, I have decided that F5 Networks (FFIV) is more overvalued than Riverbed (RVBD), and I like Riverbed better in the long term. So a possible trade here is to stay long Riverbed, and short F5 as a hedge. The premise is that F5 is trading at a richer valuation with 10X sales and Riverbed is "only" trading at 6X sales. I would also note that Riverbed is smaller and growing faster so has more room to grow into its valuation.

If only you could have the problem of having a 2% investment in a company whose share price has gone to the moon, right? Well, that's where Cisco is with VMware. While its equity stake looks smart at this stage, in the longer term Cisco is going to have to make a bid for either EMC (VMWare's parent company) or figure out the next step to get in the virtualization game.

Here's the problem: Virtualization and cloud computing, VMware's bread-and-butter, is the technology flavor of the decade, and Cisco is relying heavily on a strategic partnership with VMware to get it done. Sources in Silicon Valley are chattering about what Cisco will do about virtualization, a party its been largely left out of. As VMWare's price has shot up while Cisco's share price has stagnated, it's now become all but unaffordable to for Cisco -- VMware now has a market capitalization of $33B.

After months of talking to smart people and taking notes, my latest notebook is filled. Usually what I do at this point is read back through the whole thing to see if there are any nuggets that I missed or forgot about.

Why not just dump it straight onto the Web? This is stuff that real people are saying in the real world. For your pleasure, here you go:

BIG SKY, MT -- RightNow Technologies  (Nasdaq: RNOW), a provider of customer-service software, today launched an ambitious new platform to open up the way customer service applications are built "in the cloud."

With the new "Cloud CX Platform," RightNow is honing its focus around improving customer experiences across the Web. With so much marketing hype and confusion built around "cloud computing," this is an important expansion of RightNow's CX (Customer Experience) product that the company hopes will help differentiate itself in the larger cloud services market -- basically any software than can be sold as a service (Saas).

"This is our largest product announcement to date," said Greg Gianforte, CEO of RightNow, at the launch event here this morning. "We're exposing our cloud platform to our customers."

At the trade conference Interop last week, I did a "power-course" on cloud computing with the mission of discovering: What about cloud computing is total BS and what is real? It turned out that I ran into the right person. I learned more eating tacos and listening to  Simon Crosby, CTO of the Datacenter and Cloud Division at Citrix Systems Inc.  (CTXS), than I did anywhere else. If you want a quick definition of cloud computing, here it is:  “Cloud Computing is a data center that serves you back applications and content," says Riverbed CEO Jerry Kennelly. The way Citrix' Crosby tells it, elements of cloud computing  are the Wild West of Information Technology (IT) -- inviting people to break out from the bolt-down world of enterprise computing and do what they really want. This may also put a lot of people out of business, and make fortunes.Crosby's also filled with radical technology statements such as: [caption id="attachment_2259" align="alignright" width="120" caption="Simon Crosby, Datacenter CTO of Citrix"][/caption] "Anything that runs on an operating system is legacy technology." "Networks scale. The limit is humans." "The storage industry is about to be completely transformed again." "The security business and the detection business has totally failed." In short, some fundamental "cloud computing" concepts are enough the change fundamental business models for entire industries: For operating systems vendors, service providers, and software vendors as well.