This Great Profit Play Has Another Catalyst Coming

Michael A. Robinson

Over the summer, I told my Strategic Tech Investor readers a great way to get two stocks for the price of one through corporate spin-offs.

You may recall that this is a process by which a parent company separates a business unit into a stand-alone outfit and then issues shares in the new operation to the public.

The great thing for investors is that by owning stock in the parent company, they generally get shares in the spin-off automatically as special dividends, often tax-free.

At the time, I mentioned that a spin-off from computer storage leader EMC Corp. (NYSE: EMC) should do particularly well.

The spin-off company, Pivotal, marks its one-year anniversary this month as it continues to gain traction in the Internet realm.

And that means EMC is getting traction, too. Lots of traction, in fact.

And that makes EMC a stock that we want to own. Let me show you why…

This Company Was Always a Leader

You'd be hard-pressed to find a savvier company than the Hopkinton, Mass.-based EMC. And let me tell you right now: There's more to this story than just the Pivotal spin-off.

Much more.

Over the past decade or so, EMC has gobbled up more than 70 high-tech companies in a mergers-and-acquisition spree that saw the firm spend about $17 billion.

That's more than the company spent on research and development during that same period.

EMC ranks as a global leader in data storage products that are integral to Cloud-Computing technology, also known as "The Cloud." EMC also makes money by selling services, including storage and data backup.

Truth be told, EMC makes some of the very best hardware for mass-data storage. And it's actually gaining market share, a tough feat for a sector leader that's usually the target of all the other sector upstarts.

EMC, it seems, likes to push back.

A new report by stock-researcher Trefis.com says EMC has managed to hold its lead for at least a decade, an amazing feat when you consider the avalanche of hungry young firms that have launched in the period.

According to IDC estimates, EMC's share of the storage hardware segment is more than 30%. That's about two-and-a-half times that of its nearest competitor, NetApp Inc. (Nasdaq: NTAP).

And EMC has excellent financials. Trading at $27 a share, it has a market cap of nearly $55 billion and sells for less than 13 times forward earnings. It has operating margins of 19%, and a 13% return on stockholders' equity.

EMC recently increased its quarterly earnings by more than 17% and last year brought in more than $4.6 billion in free cash flow (FCF).

Thus, as I see it, EMC ranks as a great foundational play. It has the power to remain a market leader – and high earner – for years to come.

EMC also has deep expertise in high-margin M&As, which will help it further increase its market reach.

But unlike the rest of its high-tech brethren, EMC has an additional potential catalyst that we believe will ignite the company's shares.

Michael A. Robinson

About the Author

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Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.

As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.

In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.

You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.

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