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4 Quality Stocks in the Cloud

Moaty Salesforce and Workday are compelling pure plays, while Oracle and Autodesk are successfully transitioning to cloud-application models, says Morningstar's Rick Summer.

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Rick Summer: The technology team recently looked at the cloud-applications sector to get a better handle on the economics of the cloud-applications companies, and we came away with a couple of important overriding conclusions.

First of all, when we look at many of these pure-play companies, like Salesforce (CRM) or Workday (WDAY), we found not only do they have moaty characteristics, but that actually translates into massive operating leverage. So, these companies that aren't yet generating substantial operating profits should see massive leverage in sales and marketing and research and development, although we shouldn't see that for more than several years.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.