EMC Corporation (EMC), VMware, Inc. (VMW): Why You Should Buy This Undervalued Tech Stock Now

EMC Corporation (NYSE:EMC) is a leader in cloud computing solutions. It provides enterprise storage systems, software and networks services to leading corporations. The stock appears undervalued and it could be poised to move higher in the upcoming months.

EMC owns a significant stake in the cloud software company, VMware, Inc. (NYSE:VMW). EMC and VMware recently agreed to create a new company called “Pivotal”. The new company will provide data analysis.

Solid fundamentals

At current levels, there is a significant gap between company’s fundamentals and stock valuation. EMC’s decision to spin off VMware has proved to be successful. However, the continued growth of VMware and the rise in share price, has led to devaluation of EMC Corporation (NYSE:EMC)’s standalone business, especially when compared to that of NetApp Inc. (NASDAQ:NTAP), its most important competitor.

Despite rumors from former employees about management’s misconduct, the company sales are estimated to jump from about $300 million to about $1 billion by 2017. EMC and VMware, Inc. (NYSE:VMW) are poised for long-term success. The markets in which EMC and VMware operates are expanding at a high pace. EMC’s solid financial fundamentals allow the company to heavily invest in R&D, acquire competitors and develop new ventures. Pivotal’s business is set to grow at a rapid pace through the next coming years. In addition, if Pivotal realize its potential and will eventually go IPO, the venture will likely lead to significant gains for EMC investors.

Analysts still like the company

Analysts are bullish and see significant upside potential for the stock. According to Yahoo finance, out of 34 analysts covered EMC Corporation (NYSE:EMC), 12 analysts initiated a strong buy recommendation. As a result, EMC’s mean target price is currently $29.51. In addition, Brookside Capital Hedge Fund (also known as the legendary Bain Capital) recently indicated EMC is one of its favorite stocks. It appears there is a consensus that EMC is a now a bargain. A move towards the $30-$31 level will provide investors gains in the ballpark of 30%. Since the stock has repeatedly bottomed out around $22, the downside is somewhat limited at current levels, while the upside appears to be quite appealing.

Historic rivals, new competition

Traditionally, EMC’s faced competition from two major rivals: International Business Machines Corp. (NYSE:IBM) and Hewlett-Packard Company(NYSE:HPQ). IBM has been underperforming and delivered flat returns to investors. Recently, IBM has been reportedly in a race against EMC to purchase SoftLayer, a cloud provider based out of Dallas, Texas. The deal could be worth as much as $2 billion. Cloud providers are becoming popular target for takeovers, which makes the race between the two rivals more interesting than before. It is important to note that EMC has a good “track record” for successful takeovers. In 2003, EMC Corporation (NYSE:EMC) purchased VMware, Inc. (NYSE:VMW) for only $660 million and it is now valued at $30 billion.

Hewlett-Packard has been delivering decent results and stock has been up 40% over the course of the year. However, since EMC priced at a discount comparing to HP puts the company in a position to play “catch up” on valuation gap.