Rising Star Buy: EMC Is a Steal

This article is part of our Rising Star Portfolios series.

When you're investing, it pays to be opportunistic. I've kept a good amount of the available cash in my real money portfolio in cash for days like today. Simply put, the market is panicking. Yes, there could be more losses to be had, and the U.S. and Europe's economies look shaky. However, investors are also being compensated with great valuations on a number of leading companies that should shrug off any coming weakness and be long-term winners.

With that in mind, I'm on the lookout for companies that have shed plenty of value, despite continuing business success. If the company occupies an industry that will continue seeing demand even if the economy slows down, that's a plus. If the company has good exposure to emerging markets that continue to boom in spite of weakness in the U.S. and Europe, that's a double plus.

So, what am I picking up today? Look no further than previous recommendation and my "Top Stock for 2011," EMC (NYS: EMC) . The reasoning is pretty straightforward: I find EMC attractively priced relative to its growth prospects, believe that the company's products will stay in demand even in a shaky economy, see it as the global storage leader, and think EMC's stake in virtualization leader VMware (NYS: VMW) is still being too heavily discounted. Here's what I had to say in a recent article summarizing the best deals in today's market:

I like cheap stocks, but I love "are you kidding me?" cheap stocks. After sliding nearly 18% in the past two weeks, EMC is approaching that territory.

True, the stock still trades at 25 times earnings. However, that metric conceals EMC's 80% stake in virtualization kingpin VMware. Netting out that holding, and removing VMware's contributions to EMC's financials, you'll find that EMC trades for only around seven times trailing free cash flow. That's a bargain-basement price for a company that's a proven leader in the storage industry -- one of the tech sector's hottest growth areas. Even if you're less optimistic on cloud computing and VMware's position in it, giving EMC credit for half of VMware's current value leaves EMC trading at 13 times cash flow.

If the market rout continues, EMC's a great way to buy an industry-leading company with very high upside potential. This is one deal I won't be passing up.

True to what I said there, I won't pass up EMC. Tomorrow, I'll add to the 40 shares I already own by buying 20 more. As my associates at our growth-oriented newsletter Rule Breakers said yesterday:

Let today's action be a lesson. Traders don't distinguish between storage, enterprise software, etc. All they see is "tech." 

I think that assessment is dead-on. Let the traders throw out EMC with the rest of technology. As long-term investors focused on the company's leadership, and its valuable stake in VMware, we'll have the last laugh as EMC leverages its placement at the center of exploding data demand to deliver outsized results for years to come.

To follow my technology commentary or future buys -- of which there should be many in the coming weeks -- follow me on Twitter. Otherwise, the best way to keep up with all EMC analysis is adding the company to our free My Watchlist feature that gives you up-to-date news on all your favorite companies.

  • Add EMC to My Watchlist.
  • Add VMware to My Watchlist.

At the time this article was published Eric Bleeker owns no shares of any company listed above... yet. That may change as soon as the Fool's disclosure policy allows it. The Motley Fool owns shares of EMC. Motley Fool newsletter services have recommended buying shares of VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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