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Thursday’s market looks like it could go in either direction. In the next few trading days, we are likely to experience greater volatility until the debt ceiling situation gets resolved. We should expect a decent pop when that event happens, but we will remain stuck in the same trading range we have been in for months (1250-1350 on the S&P) in the near term. I plan to take advantage of any continued selloff by establishing a new position in NetApp (NASDAQ:NTAP).
NetApp, Inc. provides enterprise storage and data management software and hardware products and services in the United States and internationally. The company provides solutions for storing, managing, protecting, and archiving business data. It offers fabric-attached storage and V-series storage solutions that support mix of storage area network, network-attached storage, and Internet small computer system interface environments; storage management and application integration software. Here are nine reasons to own NTAP at $47 and change:
  • It has beaten earnings each of the last four quarters and earnings estimates have risen substantially for 2011 and 2012 in the last 90 days.
  • NTAP sells at 18.5 times this year’s consensus EPS but only 16 times next year’s projected earnings. It is actually cheaper than it appears as it has over $10 per share of net cash on its balance sheet.
  • NTAP is trading in the bottom end of its five year valuation range based on P/E, P/B and P/CF.
  • It is increasing its market share in storage. Credit Suisse estimates it grew it market share from 11.5% to 18% in 2010.
  • It has grown earnings per share by an average of 17% annually over the past five years despite very slow economic growth and is priced at a reasonable 5 year projected PEG of 1.08. S&P projects it will grow earnings by an average of 15% annually over the next three years.
  • Much like rival EMC, it is a secular play on the growth of social media and cloud computing, which should provide strong tailwinds for the foreseeable future.
  • It looks to have good six month technical support at the $45 level.
[Click to enlarge]
  • Given NTAP’s reasonable valuations, market value and great growth prospects; it easily could become a buyout target.
  • At $47, it is under analysts’ estimates. S&P has a strong buy rating and a price target of $68 on NTAP. Credit Suisse is at $62 on NTAP and Goldman Sachs and Susquehanna have price targets of $57.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NTAP over the next 72 hours.