At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
Yesterday, we took a short trip into the future to examine where the computer industry may be heading in 2011 and 2012. (The short version: Thanks largely to Apple
Fusion gets nuked
Bad news first: If you're a shareholder of data storage specialist Fusion-io
This, as I say, is the bad news. The good news is that not all memory stocks are created equal -- nor are they receiving equal scorn from Wall Street.
Hey! STEC around -- it gets better
Auriga and Merriman agree that Fusion is radioactive, but they part ways when it comes to memory maker STEC
On the other hand. Merriman sees the arrival of new players in SSD as good for STEC, because one great way to enter the industry might be to buy STEC. One day after Auriga advised clients to sell the stock, Merriman claimed the other side of the trade, and explained that hard drive vendors or flash memory suppliers may decide to buy STEC in order to gain control over "the best flash-management technology in the market."
From better to best
Which brings us to flash memory supplier SanDisk
Now, I should probably point out that none of the three analysts named above boasts a particularly compelling record on CAPS. Auriga, in fact, ranks in the bottom quintile of investors we track, underperforming at least 80% of its peers. Merriman is a bit better, ranked in the 61st percentile. Of the three, Avian has the best record, perching at 72%. Of the three brokers, Avian is clearly the best -- but that's not why I like its SanDisk pick better than STEC or Fusion-io. I like SanDisk because of the price.
With a projected 14% long-term growth rate, SanDisk is growing significantly faster than rival STEC. Plus, at just over 7.3 times earnings, SanDisk costs less than STEC, which has an 8.8 P/E, and a whole lot less than Fusion-io, which carries a P/E ratio of 367. (Hey, Auriga told you it was "very expensive.") Free cash flow at SanDisk closely approximates reported net income, meaning quality of earnings is high. And owing to its cash-producing prowess, SanDisk boasts a cash-rich balance sheet.
By my estimates, analysts could be overestimating SanDisk's growth prospects by a factor of two, and the shares would still be a good value. Alternatively, if the company achieves the 14% growth target set for it, I could see the shares doubling from here. It's these numbers that persuaded me to buy SanDisk for my own account a few months ago. And it's numbers like these that make SanDisk my favorite data storage stock out of the three companies rated this week.
Fool contributor Rich Smith owns shares of SanDisk. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 429 out of more than 180,000 members. The Motley Fool has a disclosure policy.
The Motley Fool owns shares of Apple. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Dell, Apple, and Intel. Motley Fool newsletter services have recommended creating a diagonal call position in Intel. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.
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