SolarWinds (SWI): IT management software

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 8/30/12 Sign up for free Cabot Wealth Advisory e-newsletter

We’ve now had 10 solid weeks of upside market action. The Advance-Decline line has been strong. The number of stocks hitting new lows has shrunk to bull market levels. And market leadership has shifted from defensive sectors like utilities, food and big medical to growth-oriented sectors like semiconductors, e-commerce and specialty retail.

Yet the man on the street is far from bullish! Economic uncertainty remains the order of the day! True, the European situation appears less perilous than it did previously, but worries about the future of the U.S.—including Medicare, tax rates, employment rates, the price of gasoline and more—are so all-consuming that there is little interest in the stock market!

Which, in the perverse logic of Wall Street, means there are likely many more months of upside ahead for this bull market!

But where to invest?

Some of the greatest growth sectors in this market, as in previous bull markets, involve the companies that make the Internet hum, from chipmakers to interface hardware makers to companies that promise security to companies that run the software and hardware that make up the cloud.

One of my favorites today is oddly-named SolarWinds (SWI), which is in neither the solar nor the winds business.

Here’s what Monday’s recommendation in Cabot Top Ten Trader said:

“With four appearances in 2011 and five (so far) in 2012, SolarWinds is making quite a mark in Cabot Top Ten Trader. The company’s lineup of IT management software is very attractive to the people who manage corporate computer networks, reducing system downtime, increasing performance and monitoring patches, settings and memory storage. The company’s appeal shows up in its consecutive years of 30% revenue growth in 2010 and 2012 and its 40% revenue bump in Q2. The company’s after-tax profit margin of 38.7% in Q2 is just the latest of 14 quarters of margins greater than 30%. SolarWinds has more than 95,000 customers worldwide, ranging from Fortune 500 companies to small businesses. Customers are often attracted by the free downloads of the company’s software, then sign on for licenses (which accounted for 47% of 2011 revenues) and maintenance and other services that brought in the other 53%. And they stay signed on, leading to a stream of recurring revenue.”

SWI’s chart features two big spikes higher this year, both sparked by unexpectedly strong earnings releases, the latest of which was in early August. Since then, the stock has consolidated that gain, trading between 52 and 56, with an upward bias. In the meantime, the stock’s 25-day moving average has caught up, and now lends support (the 50-day moving average is down at 49).

If the story appeals to you, you could simply jump on board here (hopefully after researching the company more thoroughly for yourself). Even better, you could take a trial subscription to Cabot Top Ten Trader and keep abreast of editor Mike Cintolo’s latest recommendation on SWI, as well as other high-potential leading stocks. Details here.