Is the PC dead or is there one more battle left in it? Is the mobile growing, slowing or flat? A number of such past trends with long runways have now become controversial. One that is not controversial is the transition from traditional storage to Flash memory. The old storage model was 'I want data to live forever'. That's been replaced with "I want data to live long enough to run an analytics business over it". Long enough (e.g. for Twitter or other social networking data) is not forever. And if forever data takes a long time to retrieve and analyze, then 'faster and somewhat flawed' storage is vastly better than perfect and slow (especially with redundant storage'). Ergo, the flash memory opportunity.
So how does one play the flash disrupts storage phenomenon? If you're a gambler - you can play it thru hot young startups such as Fusion-IO (NYSE:FIO) or wait for the next big thing startup (e.g. Violin Memory) to go IPO. Those are options if you want to bet big and are willing to lose everything. What if you want to ride the trend, but with a margin of safety. In that case, you have a choice amongst memory players who have skin in the flash storage game - Sandisk (SNDK), Micron (NASDAQ:MU), Samsung (OTC:SSNLF) and Intel (NASDAQ:INTC).
To me the preferred choice is someone with a large enough market cap, enough "skin in the game", and a history of winning. Here's a few reasons why that pick is Sandisk :
Skin in the Game. Solid-state disks (flash storage) isn't just another market to Sandisk. It is the growth market, one they expect to be 40% of their business by 2016. And as the figure right after that shows, it's already in explosive growth mode.
Reasonable Valuation. Enterprise value to EBITDA is one of several metrics for valuation. On that dimension, Sandisk does quite well. Samsung is a formidable competitor and the first to 3-D NAND memory, but again is a conglomerate with fingers in many pies. Intel is cheap, but a company with numerous issues and diluted focus and about the same EV/EBITDA as Sandisk. That leaves us with Micron vs. Sandisk, and if you look a long-term chart, you see that there is no period in which you were at an advantage to pick Micron over Sandisk.
Few warts and hidden skeletons. Samsung is a great flash memory competitor, but its mobile business is a big unknown. They're great, but have they peaked there? Intel is a higher dividend (one they didn't raise by the way), but their largest market is dying, and their mobile forays are bigger news when they're announced than when they are executed. Sandisk has no such problems. They are in businesses that are deeply cyclical, but have innovated their way out of cycles better than their competitors.
Downside Support. Downside support for a tech stock during summer is a relative term, and particularly so in an inflated market. Sandisk is trading at a P/E of 11, and with a newly instated dividend of 1.6%. The dividend is less than 20% of earnings, and therefore has room to grow quickly.
I estimate that the combination of reasonable P/E, a Zacks strong buy rating, and a moderate dividend give it a downside in the low 50's and an upside in the mid 70s. Importantly, with tech stocks - a trend is your friend, and Sandisk is riding a trend that has legs to it. As always, take this as considered input and do your own due diligence as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.