Storage Is Now a Staple

THOMAS VILLALTA
CHIEF INVESTMENT OFFICER
JONES ASSET MANAGEMENT

COMPANY: EMC Corporation
TICKER: EMC (NYSE)
PRICE: $14.02 (as of 4 p.m. yesterday)
52-WEEK RANGE: $11.10-$14.88
MARKET CAPITALIZATION: $33.32 billion

Thomas Villalta is the chief investment officer at Jones Asset Management. EMC Corporation is engaged in the development of information and data storage solutions. Mr. Villalta spoke to David Dalley of The New York Sun about the company's prospects.

What does EMC do?

They make computer network storage systems, both the hardware and the software. They help organizations store data and information efficiently and get the most out of it.They're known for fast storage. They work mainly with larger companies.

Why do you like the stock?

I like it for a variety of reasons.We're in a period,in our opinion,of uncertainty regarding interest rates, the job market, equity valuation levels, etc. Say what you will regarding the economic environment, the market is skittish. So we think that now is the time to buy market leaders, and EMC is the market leader in terms of storage solutions.

More specifically, you have an issue that's trading at a price that's close to where it traded seven years ago, and yet over that period you've had earnings and revenue increase by over 70%. That creates a compelling opportunity.

Why has the stock fallen so much since 2000-01 when it was at almost $100?

In the late '90s they had very good growth, and like a lot of technology issues, it got caught up in the hype. It got very far ahead of itself, and then fell precipitously in the ensuing bear market. And this is another point.The market remains pessimistic with respect to technology issues, especially in the large-cap sector.We love pessimism be cause it creates opportunity.

What will drive growth going forward?

From 2004 to 2005 they had 30% growth in net income, which is fairly sizable. While the stability of EMC's earnings is not guaranteed, we believe that the company's performance is increasingly buttressed by a political and cultural framework that requires enormous increases in storage in the foreseeable future.

Storage is increasingly a consumer staple, rather than an uncertain technological luxury. Look at your life today. For me, for instance, Amazon keeps electronic records on me, JPMorgan Chase does, the IRS does, and when I take pictures I either store them on my computer or upload them to Shutterfly. We're all storing more information either as consumers or providers. That's the cultural component.

From a regulatory perspective, things like the Patriot Act, Sarbanes-Oxley, and lots of other regulation requires companies to store much more information going back over years. So that's another thing that we think will continue to drive growth.

What do you think the stock is worth?

We're looking at a price somewhere in the mid-$20s over the next couple of years. And I think it could go higher than that. The company grew earnings by 30% over the last year, and consensus estimates predict 20% annualized growth over the next five years.