I was looking at the photonics chip teaser from Agora Financial again recently, since it’s being heavily teased again to advertise for subscribers to Technology Profits Confidential and the questions are rolling in (you can see that here, I just re-posted it to help answer some of those questions)…
…and since that teaser pick, Infinera (INFN), has actually done really, really well since it was first touted by them over the Summer (up 50% or so) I thought I’d check in on the other stocks that were teased in that ad.
Care to join me?
They pitch one that they call the “World Supernet Tech Monster” …
“Data can’t just be stored; it has to be tamed.
“By that I mean, we need to make sense of it. And this next company is the one to do it. This one is also a steady, reliable industry giant. It’s been in business since 1979.
“It was even launched by an Intel insider.
“What they do is simple. They teach companies how to sort, filter and apply all the information they collect. I don’t have to tell you it’s a lot of information collected.
“This is something you’ve also probably heard a little about.
“It’s what the industry refers to as ‘Big Data.’…
“… you might as well find a way to get on the profitable side of the equation. This company offers you that chance. Last year, they clocked in with a whopping $21 billion in revenue.
“What’s more, they’ve got an additional $8 billion in the bank.
“So don’t be surprised if they start rewarding their shareholders with dividends.”
For this one, it’s almost like they just hopped into a time machine and sent the dial back 18 months before they pulled the data — this is pretty clearly a tease about EMC (EMC), but EMC’s revenue was at $21 billion in 2012… and it was in the Summer of 2013 that they initiated their dividend. They do still have about $8 billion in cash. And yes, one of the EMC founders did work at Intel — though EMC started out selling computer furniture before they got their first tech product out a couple years later.
Since then, EMC has more or less tracked with the S&P 500 during this bull market — doing a little bit worse, actually, but not dramatically so, both EMC and the S&P are up about 20% in those 18 months. Which ain’t bad… but if you’re convinced that EMC will work out well in the end you at least haven’t missed out by owning an index fund up until now.
EMC is no longer dirt cheap by most metrics, though there are plenty of hedge funds who believe that there’s still quite a lot of value to “extract” from EMC because of its control of VMWare (VMW), their publicly traded server virtualization subsidiary. VMWare had a rough quarter when they announced in October, but the hit on VMW shares really spared EMC — which is a little bit surprising. There’s been quite a bit of chatter about EMC and the chance for both acquisitions and financial maneuvering (whether that means spinning off VMWare more completely, or merging with HP or someone else, or buying smaller firms to become more “relevant”), but I don’t know how it will play out.
They’ve got a pretty average valuation on a PE basis, with adjusted earnings for 2014 expected to be $1.91 (that would mean a current year PE of 15), with growth likely to be less than 10% next year if analysts are correct, but they do have that big VMW asset and plenty of cash so it’s always possible that something abrupt could happen to bump the stock price up (or down, of course) — so far they’ve been quite resistant to giving up their VMW stake or control, I don’t know if that’s likely to change. This is a big company, market cap around $60 billion, and they’ve been tracking closer and closer to the performance of the broad market averages over the past five years so it would probably take something substantial to shake them up — maybe Bill Ackman or Carl Icahn will come along and start shaking his big stick at them, but no activists have much sway with them right now and it’s hard for most smaller activist hedge funds to force substantial action at large cap companies like EMC.
“World Supernet Move #2 :A Pure Play on the Coming ‘Data Tsunami’ …
“We cannot have a tech-assisted future without streams of data.
“And you could get rich owning the companies that will dominate that market.
This next mega-data play that I want to show you is one of those companies.
“Already, it’s the second largest storage technology innovator in the world. And they’re already raking in over $6.3 billion a year in revenue. That’s more than six times bigger than they were in 2002.
“So this is also no small-time play.
“Here’s why they’re growing so fast, compared to competitors. Instead of storing all that data in one place, they’ve figured out a way to split it up and spread it out across a network.”
The one being teased here is NetApp (NTAP), which did indeed grow earnings from under a billion to $6.3+ billion from 2002 to 2013 — though the problem they’ve been having is that revenues have been quite flat, $6.2 billion in 2012 and $6.3 billion in both 2013 and 2014 (their 2014 fiscal year ended in April). They’ve not been consistently growing profits, either, though they do have plenty of cash (about $4 billion in net cash, as they’ve had for years) and they have bought back some shares over the years… so it’s no real surprise that the stock was at $37 three years ago and is at $43 now.
Analysts are projecting 10% earnings growth, roughly, for NTAP over the next couple years — though I don’t know where that’s going to come from. They seem to be competing with both larger players like Amazon and Google with their web and cloud services and with lots of smaller startups in big data and storage — an area where you’d really have to be pretty expert to have any idea what’s going on.
They are a decent-sized company, with a market cap around $13 billion ($9 billion if you adjust for their cash), but I don’t know whether their newer products will get traction or not — and they are in a bit of a management transition, their longtime CEO, who had been Chair for four years or so, has retired, and he was pretty much the only insider who owns any shares to speak of. Frankly, I look at this one and look at the analyst expectations, most of whom have targets right around where the stock is now in the low-$40s and think, “meh.”
Almost all the analysts (and dozens of them cover this stock) rate it a “hold,” which does at least give them a bit of a potential catalyst if they are eventually able to surprise with an earnings beat — there are plenty of analysts who could upgrade the stock if they change their minds, which would boost the shares. But that’s about all the silver lining of excitement I can see without knowing much about their products or operational potential.
So there you have it — two large storage companies being teased by Ray Blanco at Agora’s Technology Profits Confidential. Neither one seems dramatically exciting to me, but his other pitched idea Infinera did work out pretty well over the last several months… and it’s your money — perhaps you’ll see something more exciting than I do. Let us know what you think with a comment below.