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5 Data Storage Turnaround Stocks With Value & Profit Potential
6/14/2013 8:59:00 AM
If you're wondering where to invest , the valuation offered with these stock picks makes their risk return appealing.
The big energy stocks are not the only group that has been a market laggard over the past year. Many of the data storage stocks have also underperformed. Of the ten data storage related stocks discussed below, only three have outperformed the S&P 500, and half of them are down for the year-to-date.
This is rather surprising given the exploding need for data storage. Massive amounts of data are being generated every day that need to be stored somewhere. The famous "cloud," which has become a staple of technology-speak, is nothing more than a lot of huge data storage centers scattered around the country.
While the long-term demand for data storage is undeniable, the technology is developing rapidly, which increases competition and makes investors nervous. Not every name discussed below will survive and thrive, but at the current valuations these look very attractive from a risk return perspective. If you like these investment candidates, I recently identified five additional stock profit opportunities in the data storage sector.
Brocade Communications ( BRCD ) markets data storage and networking products. Operations expanded in 2007 and 2008 with acquisitions that leveraged the balance sheet just as the recession hit. A new CEO took the helm this past January. Despite recent headwinds, the company's product line remains relevant and poised for long-term growth. Strong cash flow has allowed for the reduction of debt from more than $1.1 billion at the end of 2008 to just below $600 million. Ample cash remains to fund both growth opportunities and a stock repurchase program.
EMC ( EMC ) is the 800-pound gorilla of the storage sector. The company's products and services support a wide range of corporate and governmental data storage needs. The firm's size and diversification, together with its well-regarded management, bode well for the long term. But EMC is not just relying on past laurels. For example, the company owns 80% of VMware, a leader in server virtualization, one of the fastest growing niches in the tech sector. As a result, there are ample growth opportunities, and the company's rock-solid balance sheet and strong cash flow will fuel ongoing product development.
Emulex ( ELX ) has developed a suite of connectivity products, including adapters, switches and computer chips, based on the leading industry standard called Fibre Channel. Emulex is at the forefront of the next generation of Fibre Channel technology known as 16Gb Fibre Channel or 16GFC. In fiscal 2012, Emulex was able to capture 80% of the overall market for 16GFC adapters. Management intends to continue leveraging the firm's technological advantages. The balance sheet is debt-free with ample liquidity.
Fusion-IO ( FIO ) went public in mid-2011 as one of the pioneers in a new class of server-based memory products using flash technology, which retains data even with power switched off. This provides higher speeds at lower power consumption points. Fusion-IO's customer roster includes such tech heavyweights as Apple, IBM, Hewlett-Packard, Dell and Facebook. The stock traded at lofty valuation levels for a while, but it dropped to a new post-IPO low on the news that the company's founder and CEO was departing. New CEO Shane Robinson, formerly with Hewlett Packard, has been brought in to broaden the company's scope. He has ample financial resources to work with, including no debt and solid cash flow.
Imation ( IMN ) markets a range of optical media and magnetic-tape storage devices under the Imation, Memorex, XtremeMac, IronKey and Nexsan brands. While overseeing an attractive portfolio of assets, Imation has been a bit slow to adapt to the rapidly changing storage market. But the recent expansion of its security products and the move into remote, cloud-based products could kick start a turnaround. A return to profitability, now projected for 2014, would provide a measure of encouragement. But at just 0.15 times sales and 0.43 times book value, the stock could prove to be very cheap.
Data Storage: Holding Value and Opportunity?
Company Symbol Recent Price 6-Year Range Market Cap. Mil. Forward P/E Debt to Equity
Brocade Communications BRCD 5.32 10.24-2.05 2,410 8.06 0.27
EMC EMC 23.66 29.68-8.25 49,710 11.49 0.07
Emulex ELX 6.27 23.80-4.53 570 9.95 0.00
Fusion-IO FIO 13.58 41.74-13.13 1,330 NM 0.00
Imation IMN 4.18 39.59-3.32 174 16.08 0.05