The capability has been there for a while, but has started taking of recently. The amount of data that needs to be stored is increasing dramatically with the evolution of the internet and the addition of all the cloud services. Storage solutions deserve attention, or at least a space on your watchlist. Opportunity might present itself at any time.
Tight range, no dividend, investment?
The three year return of EMC Corporation (NYSE:EMC) is around 11%. The stock was higher, but has declined and wiped out any gains. The one year and year-to-date returns are negative. EMC’s 52-week range is very tight at $21.45-$28.75. The stock is right at its 52-week low. The narrow range is a bit surprising considering the overall year that the stock market has had. Movement was the norm and it was mostly up. Even stocks that went down declined like champions.
EMC Corporation (NYSE:EMC) sports no dividend, so a careful investment is necessary. Even if the stock starts recovering, I wonder how far it would really progress before going flat again. The narrow 52-week range in light of some of the massive gains made by other stocks in the past year is a serious problem. Without a dividend to reward patience, I could imagine going stir crazy with EMC Corporation (NYSE:EMC). I still think it is worth keeping an eye on. I prefer EMC’s subsidiary VMware, Inc. (NYSE:VMW) for the long haul, but EMC has such a cheap valuation, especially with its stake in VMware, that grabbing a few does not seem like a bad idea.
EMC Corporation (NYSE:EMC) looks more like a traders stock, because it moves a lot in its defined range, heading from a top to a bottom on regular occasion. As we are near the 52-week low, I want to consider it as a longer term investment to see if there is something there that might reward shareholders eventually. Growth is expected to be muted, but positive. The company is very profitable and has almost $1.5 billion in free cash flow. It also engages itself in acquisitions. Massive free cash flow, plus not giving it to shareholders, means that the company can finance a lot of acquisitions in order to see growth.
Excluding VMware, Inc. (NYSE:VMW), the company’s marketable securities amount to $4 billion. EMC Corporation (NYSE:EMC) might be considered undervalued if you account for the VMware stock it owns, but reading back to articles a few years old, this is a consistent problem. No one can be sure when it will be rectified, but the share price, aside its stake in VMware is real value and VMware is a strong company as well.
I see EMC’s direct business as picking up over the next few years. EMC sells storage devices and related products like disaster recovery, backups, and related services. Companies will need the storage to keep up with users. All the cloud services we use and profiles that we have are an example of all the data we keep on the web now. All that data needs to be stored.
EMC Corporation (NYSE:EMC) works a lot with its subsidiary and a lot of its product initiatives are discussed with VMware. This is not surprising as VMware, Inc. (NYSE:VMW) provides virtualization and cloud services. Both of those things store data at a central location that can be accessed from anywhere. EMC’s products naturally fit into that. Even for backing up data, massive amounts of storage is needed, possibly more than the current data if multiple versions are stored. Some enterprises use redundant backups on a rolling schedule so they can jump back to a specific point in time.
VMware, Inc. (NYSE:VMW) is experiencing faster growth than EMC Corporation (NYSE:EMC), but the stock is down. By down, I mean the share priced crashed in a crazy short-term overreaction. VMware’s management reiterated that they expect impressive growth for three years beginning with 2014, which meshes with my belief that VMware is an investment in the future of the information age. I find EMC interesting, and I think $22 would be a fantastic place to get it so writing puts would be the entry. I like VMware at its current level.
Storage wars
NetApp Inc. (NASDAQ:NTAP) is in the same field as EMC. It provides network, cloud, and other storage solutions for companies in addition to other services. The hardware is still the prime mover for the company, though service could provide a valuable new revenue stream. There was not much information on this in the last earnings call.
The most interesting bit of news is that they expect some dilution stemming from warrants and convertible notes. The company has enough cash and free cash flow and expects to repurchase shares to undo the dilution. The company has $6.7 billion in cash and $2.2 billion in long-term debt. The balance sheet looks great, but I think revenue growth is what has kept the stock flat for the last year.
Conclusion
NetApp Inc. (NASDAQ:NTAP) is making money, but its revenue growth has slowed a bit, and EMC Corporation (NYSE:EMC) seems to be doing better in that regard. I also think that EMC is worth much more than it appears, because a lot of its current value is made up of its stake in VMware, Inc. (NYSE:VMW), but it is a valuable company in its own right. With EMC on its way down, I think there is a better profit opportunity there.
I like VMware, Inc. (NYSE:VMW) for the role I think it has to play in the future. I need a better understanding of NetApp Inc. (NASDAQ:NTAP) before making a decision, but I want to see what it plans on doing to increase revenue growth. Right now, it is leaning heavily on flash storage for servers, but it has yet to bring in massive profits.
The article Data Is Exploding, Buy Cloud Storage Providers originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
