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Tech stocks - Tuesday, July 8, 2008

Tech:stocker - Three Letters To Help Your Portfolio: E, M, and C.

A lot of analysts believe the market's fortunes, or lack thereof, are tied to the price of oil. Then there is another group of vocal analysts who believe the current bear market will not become a bull market until the financial stocks return to form. At tech:stocker, we believe both the suffocating price of oil and the threat of another collapse in the subprime mortgage market (we believe this will happen in earl October) are working together to create an environment that does not encourage profits and investing.

This brings us to today's stock, EMC (EMC:NYSE), which is not directly related to oil or financial services and looks well positioned for growth in this unsettling market.

In the past, we might not have been bullish about EMC when facing a sluggish economy, but over the last few years the company has done a solid job of diversifying its product offering by not focusing solely on storage systems and software but expanding into areas that are loosely related. RSA, the security division of EMC, is a great example of their revenue diversification. Data Loss Prevention is definitely an area of growth that might feel the effects of a sluggish economy but is still important enough to companies in financial services and healthcare might attempt to trim their budgets in this area but definitely cannot eliminate.

The trouble we have with EMC is their marketing efforts have not grown in proportion with the company's increasingly diverse revenue model. We at tech:stocker get a good laugh at seeing another Gartner Magic Quadrant release but we do find the release touting EMC's 2008 Microsoft Partner of The Year for Business Process and Integration Solutions as a significant milestone worth a few words to the media. While the former release is pure window dressing that it often issued when there is nothing else to tout, the latter could provide a valuable revenue stream for EMC.

But to their credit, EMC is scaling back in frivolous areas to make sure the company keeps delivering positive earnings. Well-known for hosting parties for over 5,000 company employees in Las Vegas with the likes of Aerosmith (CEO Joe Tucci was rumored to be partying like a rock star backstage with the band. With Steve Tyler and Joe Perry having given up everything but beautiful, we're not quite sure what to make of this rumor.).

We are also puzzled by certain content, or lack of on the Web site. Whether it is being cost conscious or a lack of subject knowledge, EMC touts itself as an expert of several lucrative industries including financial services, energy, and healthcare but the site does little to give anyone confidence of their knowledge of these industries. This also holds true for EMC's strategic international expansion. We know it's happening, and that definitely gives them advantage in this economy, but we see very little evidence of their movement in China and India on the site, which is puzzling.

Regardless of these minor flaws, EMC should produce strong results over the next three quarters compared to its competitors helping investors stem their losses in financial services and companies whose profits are directly related to the price of oil. While Tucci may not look like a rock star, his company has the potential to perform like one over the next four quarters.