iBooyah.com Investment Matters

Salesforce.com (CRM) - We recently wrote a long paper about Salesfore.com.  The bottom line the company has great products.  In fact, their on-demand CRM is growing like weed.  It is clearly the next wave in application development.  Moving forward, we believed all application will eventually move from our desktop to the network.

We have personally used Salesforce.com and were quite impressed with how easy it was to setup and use.  The overall cost of using an on-demand versus building and maintaining the application in-house is so much less. Their overall up-time is also very impressive. The site is up 99.9 percent of time.  There are times when it was slow and even down, but these sorts of things sometime cannot be prevented as technology sometimes will fail for many reasons. The good news is CRM is heavily investing in their infrastructure and customer service to improve uptime and improve customer communication.

Our view on CRM in terms of the stock is of concern.  Our main issue with the stock is the valuation given to the company.  It is trading at a very high P/E ratio, 916.69 as of today.  Trading at $47, we believed this stock is highly over-valued.  While sales have been growing, we fear the lofty valuation is a huge liability.  If CRM fails to impress, the stock could be hit hard.  The upside at this level is minimal, but the downside is much greater.  We have elected to stay away from CRM as we strongly feel this is one expensive stock.

SanDisk Corp. (SNDK).  If you own a digital camera, you are probably familiar with SanDisk.  This company is the leader is flash memory card.  Not only that, SNDK is also a leading provider of flash storage drive and host of other products in this sector.  If you are unfamiliar with what these are, it is the small card a size of a thumb that plug right into your PC’s USB port or your digital camera.  They come in various storage sizes.  Until a few years ago, SNDK dominated this market. 

As with any technology, the “first mover advantages” do not last very long.  This is exactly what is happening to SNDK.  The prices for these flash memories devices have declined considerably due to increased competition.  The last time we bought as flash memory card, SNDK was not even a consideration as we were able to purchase a comparable product from a lesser known brand for much less. 

SNDK stock was a great performer three years ago, but has been suffering lately.  The stock was recently hit when it failed to impress Wall St. in terms of future outlook.  Our opinion is SNDK’s run is over as low margin will continue to remain an issue.  The future outlook for SNDK is also questionable as competition is now fierce and the product has reached the saturation phase.  We believed this stock is still quite expensive at $41 per share.  However, if it were to fall to $35 per share, it would be attractive. 

update: 2-16-07.  Some people bashed us for our negative sentiments concerning SNDK calling us names that we won't repeat.  It appears we are right with our view.  Today SanDisk is down nearly 5% in after hours as the company announced they will be laying off some of their employees.  Here is the article from Marketwatch.com if you missed it. I guess we will be seeing $35 per share soon.

EMC Corp. (EMC) - EMC was once only known as a storage company for large Enterprise.  This has changed recently through several key acquisitions.  The recent acquisition of VMware was a great move and should provide EMC with a new technology that has the potential to grow.  EMC recently received a boost of confidence from Goldman Sachs which has helped propel the stock to a 52 week high. 

The competition in this sector is also fierce.  EMC competes with companies such as Sun Microsystems (SUNW) and IBM to name a few. However, the one positive thing with storage technology is it is difficult for customer to simply switch.  There is certainly a lock-in factor with these technologies. EMC has been a decent job of tying customer to their platform through integration.

Our long term view on EMC is bright.  We believed this company competes in a market that is huge and has been doing a great job of keeping its market share.  We predict this stock could easily double in the next 3 years.  Short term, we are a little concern given the stock been had quite a run.  Trading at $14.56 per share as of today, we would be reluctant to buy the stock at this level.

Our rule is to never buy a stock when it is trading at or near its 52 week high. So far this rule has saved us on many occasions.  We admit this rule has also burned us a few times as the stock continued to rise setting new records day after day. The way we chose to look at it is, we would rather miss out on some hot stock then get burn on the way down.

Another observation we should point out about EMC is this stock moves slowly.  We have watched this stock for over 5 years now and their overall performance has been below the S&P 500.  It is certainly a long term investment and one needs to be patient in order to reap the benefit from this stock.  Our target entry price for EMC is $12 per share.  We believed at $12 per share, there would enough cushion to offset the risk.