Glenn:
Perhaps you can offer the thread your thoughts on why the analysis is lame as well as the storage portfolio below.
thanks,
tm
Tech Savvy
Creating Your Own 'Storage Portfolio'
By Jim Seymour
Special to TheStreet.com
10/27/00 9:30 AM ET
URL: thestreet.com
In Thursday's column, I outlined the forces driving the explosion in the storage market. New ways of envisioning storage, new storage architectures, new kinds of media demanding much more file space, and a new push by storage outsourcers are all important.
I've picked 11 companies I'd like to own in the storage market and assembled a "Storage Portfolio" that indicates the relative mix, on a dollar-weighted basis, that I think makes the most sense. Here's the portfolio:
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Storage Portfolio
Symbol Issue % (dollar-weighted)
EMC EMC 20
CPQ Compaq 10
DELL Dell 10
HWP H-P 8
IBM IBM 7
NTAP Network Appliance 7
SUNW Sun 10
ADPT Adaptec 2
BRCD Brocade 8
CY Cypress Semi 4
QLGC QLogic 4
Cash 10
Source: TSC Research
The usual disclaimer: I am not suggesting you go out and buy this list of stocks, in this combination and weighting or otherwise. RealMoney.com and TheStreet.com aren't about becoming your stock-pickers; we want to give you the tools to do that for yourself.
Also: The relative weighting of the stocks here -- a dollar-weighted measure, please remember -- reflects not only my sense of which companies are likely to succeed, and to what degree, but also how big their storage business is in the context of their overall sales and how their stock is seen in the market.
For example, I'd boost the percentage of dollars invested in IBM (IBM:NYSE) substantially if storage were a larger part of its business. But then I might bump that percentage back down, no matter how important storage was for IBM, because the stock is not exactly loved on the Street these days.
So this isn't a handicapping game.
Finally, one more, a big one: The ground shifts rapidly in storage. If you buy any basket of storage stocks, you have to keep an eye on them. Reallocate your funds from one to another and add or drop companies frequently. This ain't a "buy-and-forget" business.
A quick rundown on the companies in the mix:
The first seven names are makers of storage devices (to be sure, including a lot of original equipment manufactured parts in the box); the last four are plays on supporting the drive makers with interconnection products.
EMC (EMC:NYSE), unsurprisingly, tops the list. It's the big gorilla of the business, the high-end winner with a gold-plated reputation for its technology and customer service. Compaq (CPQ:NYSE), Dell (DELL:Nasdaq), Hewlett-Packard (HWP:NYSE), IBM and Network Appliance (NTAP:Nasdaq) fall in line behind EMC.
Compaq has a huge storage business and has allied with another major player, IBM. The two will sell each others' products to better compete with EMC's top-of-the-line Symmetrix and midline Clariion products. Such agreements are becoming commonplace. Similarly, H-P scrapped its partnership with EMC earlier this year and now resells Hitachi's high-end storage server.
And Dell has been reselling Network Appliance's small servers, but recently ended that arrangement and introduced its own, Dell-designed-and-built products.
Sun, which has fallen behind in the storage market, recently rolled out new models and promised more soon, which should help it compete better in the midsize storage-server market.
And Network Appliance, which has been brutally successful in the smaller server NAS (network-attached server) market, is also moving upscale, most recently exploiting EMC's disdain for the NAS market by rolling out units that compete on capacity and speed with EMC's expensive Symmetrix products -- at a fourth their cost.
Among the companies producing interconnection products, Brocade's (BRCD:Nasdaq) been the big winner. I've written here about my concerns over Brocade's total commitment to fiber-channel products, as a significant part of the market looks instead at Gigabit Ethernet and, a little further out, InfiniBand.
But in the near term, Brocade, which is still very expensive, at a price-to-earnings ratio in the neighborhood of 650 even after its fall Wednesday and Thursday to around 216, should continue to mop up sales of fiber-channel products for storage farms.
QLogic (QLGC:Nasdaq) plays there, too, and Adaptec (ADPT:Nasdaq) is the leader in RAID (redundant array of inexpensive disks) array controller. RAID will continue to snag sales in smaller installations for years to come.
I list Cypress Semiconductor (CY:NYSE) because I'm very impressed with its brand-new InfiniBand transceiver chip, the InfiniPHY, which I think looks like a candidate for early leadership in InfiniBand controllers.
You might want to jiggle the numbers differently, but I think a little 11-stock portfolio along these lines could be a big winner over the next two years.
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Wrong! Dispatches from the Front
The Opposite of a Bubble
By James J. Cramer
10/27/00 11:07 AM ET
URL: thestreet.com
Speaking of bias, it is terrific timing that Jim Seymour just penned a dynamite piece titled Creating Your Own 'Storage Portfolio.' We are still trading storage with a positive bias because the fundamentals in storage are better than the fundamentals in optical, and the prices are not as egregious.
That doesn't mean the group is cheap, per se. We are long Brocade (BRCD:Nasdaw) and we recognize that it is one of the most expensive stocks we follow. But we have incredible confidence in Brocade's execution and we think its market, unlike optics, isn't suffering from the same weak end-market customers. Same with Sun Micro(SUNW:Nasdaq) (which has far more nondot-com clients than any of the bears are willing to admit).
The distinction here is crucial. The end market for fiber -- the telco networks -- is hobbled. The end market for data storage -- pretty much every company in the universe -- is still doing great. That's why we are playing storage to the long side.
In fairness though, we have put out some shorts in the group -- none on Jim's list -- so we can stay long our Brocades and our Sun Micro's without too much hardship and price risk. The ones that we don't like tend to be newly issued storage plays, brought during the IPO frenzy for the group.
Why isn't Jim's portfolio part of a bubble that I don't like? Because you can't call stocks that sell at low multiples like Dell (DELL:Nasdaq) and Compaq(CPQ:NYSE) and IBM (IBM:NYSE) -- definite storage plays -- a bubble. Those are reasonably priced. That's the opposite of a bubble! |
