Have you ever been told your investment style is akin to someone with their head in the clouds? If so, I am sure it was not a compliment. However, cloud computing provides a great opportunity for those investors that are willing to invest with their heads in the clouds.

Why Cloud Computing?

What differentiates the cloud computing trend with that of other past technology fads are two factors. Because the economy is coming out of one of the worst recessions in recent history and companies have a different mindset than they did in the past, the first factor is cost cutting. All companies in all industries have been looking for ways to lower costs when times are tough and cloud computing will help facilitate this. The second factor is increased production. In a perfect world a company could lower cost and increase production at the same time. Cloud computing is one of the answers. (For related reading, check out From Beads To Binary: The History Of Computing .)

Cloud computing in simple terms gives users the ability to access applications from the internet from anywhere without the need for dedicated personal servers. An example is Salesforece.com (NYSE:CRM ), which offers software for salespeople that can be accessed from anywhere with an internet connection and links all employees in the company. Cloud computing can also be termed software as a service (SaaS). There are four companies that stand out in the space as potentially winners in the years ahead.

Warranted Valuation

Rackspace Holdings (NYSE:RAX ) is well known for its traditional web hosting services and has recently expanded into the cloud computing sector. Its cloud hosting service allows customers to utilize services from the server on an on-demand basis. From a fundamental view, the stock is expected to turn its first annual profit in several years with earnings per share of 25 cents in 2009. In the following two years, First Call has the per share earnings at 70 cents, 100% growth. Even at 2011 earnings the P/E Ratio is 27, but with growth coming in at such a high pace, the valuation is more than warranted

RightNow Technologies (Nasdaq:RNOW ) is a technology company that is focused on helping its clients give superior customer service. The company focuses on three areas: web, social media and contact center. The web segment focuses on the growing presence of customer relationships that take place on the internet via chat and email. The social media area does just what it says, helps the company expand through the fast-growing social media sites. Based on First Call estimates, RNOW is expected to earn 35 cents per share in 2009, 47 cents in 2010, and 74 cents in 2011. This is significant growth that is common with many stocks in this sector.

Acceptable Price-to-Earnings

Taleo’s (Nasdaq:TLEO ) provides companies with on-demand talent-management software solutions. The software will help with recruiting, employee performance management, hiring, etc. When times are tough, as they are now, it is imperative that a company constantly evaluate its talent and potential new-hires. Fundamentally, the company does not have the same growth as the first two stocks, but with estimated earnings per share of 94 cents in 2011 the stock is trading at an acceptable 22 P/E based on 2011 earnings. (For more, check out Getting On The Right Side Of The P/E Ratio Trend .)

Terremark Worldwide (Nasdaq:TMRK ) is a diverse IT company that is positioned well if the data center sector continues to grow its cloud offerings. By partnering with large firms such as VMWare (NYSE:VMW ), TMRK is able to use its influence to penetrate large worldwide companies. Technically the stock is the strongest of the four with heavy flows of big money coming into the stock. Fundamentally the stock is expected to continue losing money until 2012; however, this is a future growth story. Without solid fundamentals, TMRK is the riskiest of the stocks mentioned.

In the end, investing in the cloud computing space can be very lucrative. However, investors must have patience and realize this is a long-term investment theme. The daily movements will be erratic due to the hype that the sector is beginning to garner in the media. Use the sell-offs as buying opportunities if you wish to build long-term positions in the above-mentioned stocks. (For more, check out The Successful Investment Journey .)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!