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Guru Scott Black's Stock Picks from Barron's Midyear Roundtable

June 18, 2013 | About:
Monica Wolfe

Monica Wolfe

129 followers
Scott Black is the chairman, president, chief investment officer and chief compliance officer at Delphi Management. In regards to his investing philosophy Black said, “We pursue a proven, conservative investment strategy that emphasizes the fundamental performance of underlying companies rather than making bets on short-term market movements or jumping on the latest bandwagon.”

Scott Black says that his two stock picks for the midyear roundtable are tech stocks and plays on data storage. The following two companies represent Black’s stock picks in Barron’s Midyear Roundtable, what he had to say about them and a brief overview of the company.

EMC Corporation (EMC)

VMware is a play on cloud computing and virtualization that will grow by 40% and I am buying it through EMC. VMware is the growth engine of EMC. VMware is trading for $71 a share. The company has $10.38 in net cash per share. Assuming that it will earn $3.28 a share this year, it trades for 18.5 times earnings. As a value investor, I couldn't pay 18.5 times earnings. EMC is a much less expensive way to buy it.

EMC Corporation owns 80% of VMware.

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EMC is focused in enabling businesses and service providers to transform their operations and deliver information technology as a service. The company works with cloud computing in order to help IT departments store, manage, protect and analyze information in a more agile, trusted and cost-efficient way.

In EMC’s most recent annual meeting, the company declared a $0.40 per share dividend, for a 1.6% yield. The Board also authorized a $6 billion stock-buyback program that will be active through 2015.

Black’s model for earnings from EMC:

Based on my model, EMC could have $23.4 billion in revenue this year, up 7.8%. Operating income, not including stock-option expense, will be $5.967 billion. Subtracting nonoperating expenses of $280 million, you get profit before taxes of $5.687 billion. Taxed at 23.5%, that's $4.35 billion in net income. Subtract the minority portion of VMware's profits, or 20%, and net is $4.065 billion. Divided by 2.19 billion fully diluted EMC shares, you get $1.86 a share in earnings, up 9.4% from the prior year.

The analysis on EMC Corporation reports:

· Maintains enough cash to cover its debt.

· The company has shown predictable revenue and earnings growth.

· The company’s operating margin has been expanding

EMC Corporation has a market cap of $52.14 billion; its shares were traded at around $24.99 with a P/E ratio of 20.20 and a P/S ratio of 2.50. EMC had an annual average earnings growth of 18.8% over the past 10 years. GuruFocus rated the company the business predictability rank of 3-star.

There are 21 gurus that hold stake in EMC Corp. Click here to see their holding histories of the company.

SanDisk (SNDK)

It has about a 50% global market share… SanDisk is a technology leader, and the low-cost producer. The company dedicates 70% of its free cash flow to repurchasing shares. Production capacity is 2.5 million wafers a year, via a joint venture with Japan's Toshiba [6502.Japan], and production is sold out through this year.

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SanDisk designs, develops and manufactures data storage solutions in a variety of form factors using its flash memory, proprietary controller and firmware technologies. Its mission is to provide simple, reliable and affordable storage for consumer use in portable devices.

Revenue for SanDisk has the potential to rise 15% this year, to $5.8 billion. The company currently has $4.3 billion or $17.51 a share of net cash. Black’s estimate says that after taxation, the company will earn approximately $1.009 billion, or $4.10 a share, which is up 72% from last year’s $2.38 a share.

The Peter Lynch Valuation shows that the stock appears to be overvalued:

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SanDisk has a market cap of $15.52 billion; its shares were traded at around $63.14 with a P/E ratio of 32.90 and a P/S ratio of 2.90.

There are currently held by 12 gurus. Click here to see their holding histories.

You can view more information on Scott Black’s holdings here. Also check out his Undervalued Stocks, High Growth Companies and Top Yielding Stocks.

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Rating: 2.3/5 (7 votes)

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