Is Jim Cramer Wrong on EMC? Say it Isn't So!

During Jim Cramer's Mad Money Lightning Round last night, he recommended EMC on the fly after a caller asked about it. He also owns EMC for his Action Alerts PLUS portfolio. Cramer's opinion on EMC was "The growth of storage of information technology is growing at about 60-percent...in slow times it grows at 40-percent. EMC is grossly undervalued."

Where the lightning round is primarily the entertainment portion of the show, it is not to say Mr. Cramer does not know what he is talking about or that it does not produce good ideas, because it does and he does...even during the lightning round. In his book, "Mad Money, Watch TV, Get Rich" he reveals how he analyzes stocks and businesses on the fly. It is very impressive and his methodology/decision is almost always correct. However, Mr. Cramer does make mistakes. He is also the first one to tell you he's made a mistake. In the case of EMC, I believe the stock is valued correctly right now, and does not have a catalyst for going higher.

EMC is a computer information storage company. They create, develop and produce the storage components we use on our computers. Jim Cramer's thought process seemed to be that the industry and the world is moving toward solid state storage for our computers, using the same technology in a flash drive for your computer. Faster and more reliable storage, EMC and the Data Storage Devices industry are already moving toward this technology.

Regardless of how great EMC is as a company, my opinion is that is a waste of your time and money. The stock has barely moved up and down a dollar all year. The following analysis will show you that it does not meet my criteria of a "good" investment. To read more of what my criteria is, read "A Mission Statement for a Solid Stock Trading Strategy." Here are the bottom line numbers of my analysis which I completed after hours on December 4, 2007:

• Current Price: $19.19
• ROIC: 10.6%
• Current P/E: 23.4
• Historical P/E: 27.1
• EPS Growth Rate: 6.79%
• Equity Growth Rate: 15.04%
• Stock Value: $19.23

The analysis shows that the value of the stock is properly valued at this time. Where the future EPS (2.87) and future value after 10 years (77.78) look good, with the "Margin of Safety" (Town, 2006) calculation that I use in determining whether I will invest in a company, attempting to earn a minimum of 15-percent gains (annually), I have determined that EMC would be a BUY (on sale) at $9.62. Where I think that EMC is a great company, with great leadership, I don't think you would lose money buying EMC, however I do not believe it will create the gains that my strategy is aiming for.

All of the data used to analyze EMC was taken from MSN Money and Yahoo! Finance. In addition, I also am not immune to mistakes and errors. If you have any inputs on my analysis or other opinions on EMC, please feel free to comment at the bottom of this article page.

References:

All financial data used in my analysis comes from MSN Money and Yahoo! Finance.

Cramer, J. J. (2006). Jim Cramer's Mad Money. Watch TV, get rich. Simon & Schuster, New York, NY.

Town, P. B. (2006). Rule #1, The simple strategy for successful investing in only 15 minutes a week! New York. Crown Publishers.