This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

Put EMC on Your Watch List

Stocks in this article: EMCVMW

NEW YORK ( TheStreet) -- We look for the technology sector to be a strong performer this year.

At the moment, we are not looking to add any additional technology names. However, one that is very interesting and is on our farm team (our high-priority watch list) is EMC (EMC). The company is the leader in high-performance storage solutions, an area of continued rapid growth for technology investments, as more data and transactions need to be processed, analyzed and ultimately stored.

Historically, the biggest knock on owning this stock has been its valuation. EMC has always traded at a significant premium to the market at 20 to 30 times earnings. What adds complexity to the valuation is that EMC is a heavy user of options and also owns 80% of VMware (VMW).

This article originally appeared on March 22, 2013, on RealMoney. To read more content like this + see inside Jim Cramer's $3 million portfolio for FREE, Click Here NOW.

Options dilution reduced reported earnings by $0.38 in 2012. Instead of reporting $1.69 in EPS for 2012, the actual EPS was $1.31. EMC is one of the last holdouts of the options craze of the pre-2000 tech bubble.

Additionally, EMC's numbers get convoluted by the company's stake in VMware, the leading virtualization software company. EMC's VMware stake is worth $27.5 billion, which is over 50% of the value of EMC's total market capitalization of $51.6 billion. Investors have to make various adjustments to financial statements to get to the true value of EMC.

Once investors get a handle on these valuation-related nuances, the EMC business franchise is quite simple and compelling. EMC is the leading provider of high-performance storage products, software and services, and its 40%-plus market share continues to grow.

With VMware, EMC is making further inroads into software-driven storage, data processing and networking. This is a critically important direction toward which the overall IT industry is trending: the gathering, processing, analyzing, storage and backup of all of the data being generated over the various Web feeds and transactions. EMC is at the center of this revolution, offering important technologies and securing leading market share.

The company recently held its annual investor day. Management outlined the various products, markets and strategies. In general, investors came away with the feeling that EMC is in the right place at the right time, with the right technologies. Management outlined a clear case for both solid double-digit revenue and profit growth in the coming years. The growth will also occur with high 24% operating margins. Most of the analysts and investors believe that EMC should be able to report revenue growth of 10%-plus and earnings-per-share growth of 15%-plus over the next several years.

EMC should be a winner in the upcoming technology cycle, and at the right price, the stock should be a good investment. The valuation is interesting, using EMC's operating income (13.7 times earnings), but less compelling when adjusted for options, at 18 times-plus times earnings. While we are wary of the dilution resulting from options, for those who are less price sensitive in their quest to buy a higher growth technology company, EMC warrants a closer look.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 17,160.00 +185.69 1.09%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,552.3250 +3.0990 0.07%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs