Buy, Sell or Hold: Bank on the Broadband Revolution with EMC Corp. (NYSE: EMC)

Major fund managers on Wall Street continue to be very cautious and underestimate certain key trends - one of which they have yet to even catch on to. 

In the last few weeks, I recommended you to invest in a number of companies that are linked to this underestimated trend: The broadband explosion.

In fact, we got into Cisco Systems Inc. (Nasdaq: CSCO) before that company unveiled its new "super-router." I also recommended buying other beneficiaries of the broadband trend, including Juniper Networks Inc. (NYSE: JNPR) and JDS Uniphase Corp. (Nasdaq: JDSU).  Today, we continue diversifying into other beneficiaries with a very strong player: EMC Corp. (NYSE: EMC).

EMC is the unquestioned leader in data storage.  The company leads in data storage volumes, as well as integrated technology solutions. With its bulletproof, highly capitalized balance sheet and annual cashflow of $2 billion, EMC continues to stay ahead of its much smaller competitors.

This technologically driven leadership translates into higher margins and better value and quality for customers.  In turn, EMC should continue building market share.

Right now, data storage is 90% of EMC's business. And data storage is exploding:  Large and small companies are digitalizing all their records, which means massive scanning.  Images and video take huge amounts of memory space.  As the data is backed up and circulated within the organization, it contributes to the explosion in broadband data traffic that we are seeing.

More importantly, the company continues to migrate from a proprietary hardware and software company towards providing software and services.  The resounding success of its VMware Inc. (NYSE: VMW) subsidiary - which is 85% owned by EMC - is an example of the path forward for EMC.

VMware, like its parent, has an overwhelming lead in technology and market share.  VMware leads the world in virtualization software. Take, for example, its Fusion 3 virtualization software, which allows consumers to run Windows and Linux on their Macs. It is simple and extremely powerful.  And the same is true of software utilized for data storage and other virtualization solutions at the enterprise level.

However, aspiring "me too" competitors will find this segment very difficult to penetrate. Microsoft Corp. (Nasdaq: MSFT), for example, just stumbled recently when it was discovered that a serious vulnerability in its software exposes users of Microsoft's PC virtualization software to malicious hacker attacks.

Virtualization is not the only new game in data storage.  Solid state drives, which have access times that are as much as ten times faster than traditional drives, are changing the game. Some well-funded leaders are deploying innovative, flexible solutions that optimize the cost-performance equation for customers.  Given EMC's technological leadership of this new trend, it will also boost its market share.

And be mindful that a silent, unstoppable wave is driving across America and the world: cloud computing.  This means that data is held off-site "in the cloud" and processed using software that is rented as a service.  EMC is a premier beneficiary of this trend.  With the huge budget crunch that many cities and states have, consultants are extremely busy eliminating information technology departments and transferring data management and processing to clouds.

EMC's technological and cost advantages are strongly supported by an unparalleled salesforce and distribution network, as well as a close partnership with systems powerhouse, Dell Inc. (Nasdaq: DELL).

Growth is about to take off.

EMC's business is pro-cyclical to the U.S. economy.  So, while revenue was down 8% last year, the economy is rebounding and corporations are cash rich and ready to reaccelerate.  Systems and the new trends in digitalization and virtualization greatly improve productivity and will be rebounding much stronger than the rest of the economy.  That’s because storage is mission-critical and having data and software on a cloud is very important.

At the same time, the revolution in broadband means that there is a huge increase in the need for data storage, which is expanding exponentially.

This is a great opportunity to get into a stock that will be growing dramatically in the months and years ahead.  Technically speaking, EMC stock trading has breached key one and two-year resistances. 

The next long-term target is the all-time high of more than $23 a share.

While the price-to-earnings (P/E) ratio and the price-to-earnings-to-growth (PEG) ratio appear slightly expensive, the reality is that profit and growth forecasts are underestimating the aforementioned trends. 

The company will be reporting earnings on April 21 and I expect it to easily beat analysts’ estimates.  That will bring all these valuation metrics down dramatically.

EMC on Friday fell 17 cents, or 0.91%, to close at $18.56 a share.

Recommendation: Buy EMC Corp. (NYSE: EMC) at market (**).

(**) Horacio Marquez owns no interest in EMC Corp.

[Editor's Note: Horacio Marquez knows how to make a market call. It was Marquez who told investors that lithium was going to be big - a year before other "experts" made the same call. Now Marquez has isolated the major profit opportunities being created by the possible broadband breakdown - a situation that the news media is only just now starting to understand. To find out all about those top profit opportunities, check out this new report.]

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