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Sell EMC? Nope, Not Me

I admit it. I like boring. Especially when it comes to investing. Just give me a business that, like a good friend, keeps its promises, shows up as expected, and can always be counted upon -- a business like, well, EMC (NYSE: EMC  ) .

The storage supplier is slowly winning me over because of its penchant for predictably stellar results. Witness this morning's earnings news. Every business unit saw double-digit revenue gains from last year's fourth quarter. Full-year sales grew 32% from 2003. Net income was higher by 46% over last year's fourth quarter, while full-year profits were up 76%. Even my estimate of owner earnings was higher by more than 70%.

Much of the company's success should rightly be attributed to its acquisitions. But it begs the question: What in the heck can EMC do to create another enviable encore? And should investors be worried that the company -- and the stock -- has run out of steam? After all, guidance for 2005, while very sound, shows that the company is poised to grow revenue by 14% to 16% during 2005 -- half of last year's growth rate. Plus, gross margins, which expanded by more than five percentage points during 2004, should improve by less than a percentage point. Perhaps that's why investors have sent the stock lower by nearly 2% as of this writing.

CEO Joe Tucci explained the guidance by saying it is in EMC's nature to plan conservatively, but he also cited increased competition that could put pressure on the firm to manage costs.

Among the list of Tucci's top competitors in high-end systems were Hitachi (NYSE: HIT  ) and IBM (NYSE: IBM  ) ; in software, the soon-to-be combined VERITAS (Nasdaq: VRTS  ) and Symantec (Nasdaq: SYMC  ) ; in storage networks, Network Appliance (Nasdaq: NTAP  ) . Each presents a substantial threat to core areas of EMC's business.

But Tucci has a plan to deal with each of them. He'll combine products from each of his business units to sell platforms to his customers. Need e-mail management? No problem; EMC will sell you a disk array to store your conversations, management software to keep them safe, and some services to get it all set up. It's this same "get it all here" strategy that has served IBM well in the past, and Oracle (Nasdaq: ORCL  ) more recently.

That's why I think today's sellers are just plain wrong. Will EMC grow as fast as it has? No, of course not. But it has plenty of cash, a proven acquisition strategy, declining expenses for stock options, and improving margins. Now that's my kind of stock.

For related Foolishness:

RFID. A new quest for space. Smarter homes. We've profiled each of them as Rule Breaking innovations to watch this year. What do each of them have in common? They all demand more computing power and, therefore, more data storage. Does that make EMC a Rule Breaker? How about its competitors? Let us know what you think at theRule Breakers New Stock Ideasdiscussion board. You can get access by taking a free, 30-day trial toMotley Fool Rule Breakers.

Motley Fool contributor Tim Beyers is searching for more storage in his basement. Have any ideas? Write him here. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. To find out what's in his portfolio, check his Fool profile here. The Motley Fool has a disclosure policy.

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