What Do Hedge Funds See in EMC Corporation?

Data storage provider EMC Corporation (NYSE:EMC) earned a place on our list of the 10 technology stocks hedge funds like for the second quarter of 2012. A total of 51 hedge funds and other notable investors in our database of 13F filers reported a position in the stock. Brookside Capital, a unit of large asset management firm Bain Capital, was one of the funds taking a liking to EMC. Brookside increased its stake in the data storage company, which also provides information security services and intelligence software, by 38% to a total of 9.4 million shares. According to its filing this made EMC one of the top five positions in its portfolio (see more stock picks from Brookside Capital). Another fund with an investment in EMC was billionaire Ken Fisher’s Fisher Asset Management. Fisher owned 22 million shares at the end of June, and the company was one of that fund’s largest holdings as well (check out billionaire Ken Fisher’s favorite stocks).

Ken Fisher - FISHER ASSET MANAGEMENT

In the second quarter of 2012, EMC saw its revenue increase 10% compared to the second quarter of 2011 led by an 18% increase in its smaller services business. Expenses were held down, and one of the largest increases was a 22% increase in spending on R&D. Stripping out net income derived from the company’s stake in VMware, earnings grew 12% to 29 cents per share. Over the first half of the year, revenue was up 10% and net income was up 21% compared to a year ago. Cash flow from operations grew 33%, with the company pulling in $2.9 billion in net cash in the first half of the year; EMC used the cash to pay down some convertible debt and much of the remainder was invested in liquid securities. At the end of June, it reported $4 billion in cash and cash equivalents and $1.7 billion in short-term investments on its balance sheet. However, its current liabilities were fairly high as well and so the company will likely keep much of this liquidity on hand. EMC trades at a trailing price-to-earnings ratio of 23, which places it out of pure value territory but means that it could still be fairly priced if it continues to grow its earnings per share. The sell-side believes that it will, and based on their expectations its forward P/E is 14 and its five-year PEG ratio is just above 1.

The closest peers for EMC are Hewlett-Packard Company (NYSE:HPQ) and International Business Machines Corp. (NYSE:IBM), though these companies have other business interests as well. HP’s stock has fallen 23% in the past year as the company struggles (among other factors, the PC business is being squeezed by tablets), with the stock price correctly anticipating a fall in revenue last quarter compared to a year earlier. The market continues to be skeptical as the stock trades at only 4 times forward earnings estimates. Giant IBM, about four times EMC’s market cap, carries trailing and forward P/E multiples of 15 and 12, respectively. It saw moderate growth in its earnings last quarter, but the effect was entirely due to an increased margin.

We would also compare EMC to fellow data storage-focused companies NetApp Inc. (NASDAQ:NTAP) and Brocade Communications Systems, Inc. (NASDAQ:BRCD). NetApp’s business has been struggling recently: its revenue increased last quarter versus a year ago but its earnings were down. The market expects it to rebound, and its forward P/E is 14 with a trailing P/E of 22. These multiples are similar to EMC’s despite the company’s poorer recent performance. Brocade, a smaller company at a market capitalization of just under $3 billion, trades at a similar trailing multiple (22), but has been growing at a rapid clip and is priced at 11 times forward earnings estimates as it is expected to outperform EMC going forward. Brocade’s growth is tempting if an investor doesn’t have a preference for market leadership, in which case EMC or IBM might be better picks.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!