There is no doubt that EMC Corp. (EMC) is doing well. Compared to last year, the company has improved EPS by an astounding 20.8% -- a string of two years of earnings growth. It is also quite healthy when it comes to cash on hand, which increased by 16.32% over the previous year and is well ahead of the industry average contraction of -7.24%. EMC has enjoyed a value increase of over 25%, which makes it a bit expensive, but the company's strengths may still justify investing in this stock.
One of the things that makes EMC so profitable is its ability to provide a superior product and communicate its availability through a well-organized distribution channel. Its success can be linked to this as it invests heavily in partnerships with its Velocity distributors. The EMC Velocity Solution Provider Program is designed to foster customer specialization while rewarding partners through increased revenue opportunities and expanded market penetration. It is the organization of this program that enabled the company to win the "Rising Star" award for outstanding sales growth through the concept of distributing partners. It is important for a company to have a good product, but just as important to have well-organized distribution channels.
A major challenge with regard to cloud technology has been the question of security. As an example of innovative technology, EMC is partnering with Intel (INTL) and RSA to offer service providers and enterprises the ability to build what it calls a "bullet proof" security in public, private, and hybrid clouds. As data moves between centers, it can now move safely. This is important for mission-critical applications so that there is no downtime for end users or applications. This has always been a concern for service providers and enterprises deploying cloud infrastructures. Now that problem can be solved. Innovations such as collaborations like this are what will keep EMC at the top of its industry.
It is mid-September now and it looks as if EMC has been on an uptrend since early June, even though the first week of July appeared to challenge what we know now. The RSI indicator is moving right along with the stock and supports this move on strength. The stock has been moving along the top of the upper Bollinger Bands, which also signifies strength in this move. Even when it took a bearish hit in mid-August, it never reached the lower band. The MACD has also kept itself in bullish territory. The stock recently broke out of a bullish pennant pattern and is continuing upward. Observing the charts, I would tend to believe the stock is still bullish.
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The Options Play
The stock is presently trading at $27.67, and I believe it will continue to move up in a strong trend. I am looking at a bullish income play.
- Buy the January 2013 call with a strike price of "27" (priced at $2.22)
- Sell the January 2012 call with a strike price of "28" (priced at $1.72)
- Net Debit to Start: $0.50
- Maximum Profit: $0.50
- Maximum Risk: net debit
- Maximum Length of Play: four months
Reasoning Behind the Trade
- The stock is very bullish, so play the trend.
- The company's well-organized sales system will keep it pushing up.