A well crafted watchlist is critical to smart investing. It can help you find attractive buying opportunities, and it can save you from bad decisions. After all, investors can be their own worst enemies. When we overreact to the day’s news, we make rushed decisions driven by emotion.
A watchlist can help you slow down the process, examine the risks, and essentially take a deep, money protecting breath. The Fool now offers MyWatchlist.com, your customized hub to follow the performance and Fool news and commentary about the companies you’re watching.
But what to put on your watchlist. Today, Motley Fool analyst and resident computer nerd Eric Bleeker shares three companies that have taken up residence on his watchlist and one that has since made the jump to his Rising Stars portfolio.
One to watch
Life in the clouds can be lucrative. With cloud computing picking up steam, the demand for data storage is constantly increasing, which makes life good for the folks at EMC, a storage giant in the field. Unfortunately for us, the market recognizes this, leading to rich valuations for nearly all the significant players here. That also looks to be true for EMC, with a P/E of about 28.
But there’s more to the numbers. EMC owns a massive stake in VMware, a leader in software for virtual computing. EMC bought the company in 2004 and spun it back out in 2007, and EMC still retains an 80% ownership stake in VMware. Strip away that investment, and EMC is suddenly trading at a single digit multiple to free cash flow. Eric is looking deeper into VMware’s valuation, which looks overly rich, and EMC’s ownership, but his interest in the clouds has been piqued.
Two to watch
Citrix Systems also has a tie to cloud computing and is especially well-positioned in its virtual desktop offerings. It’s a rival to VMware, but this company is “the least excessively priced in a very bubbly field,” according to Eric. It’s also worth watching because it’s buyout bait, and talk in the field is that Microsoft would counter any bid to purchase Citrix. As a stand-alone company, it offers a cheaper though hardly cheap way to get into an investment in the virtual office. It is worth watching on share price and on the temperature of the swirling acquisition rumors.
Three to watch
Chip maker Marvell Technology Group was beaten down a bit because it was toiling in an area of computing far less appealing and futuristic than cloud computing: the company had the temerity to work in the arena of hard disk drives. They might as well have focused their efforts on record players and rotary phones. But the company has broadened its focus to hit much cooler and market appreciated areas such as mobile devices and networking.
The result has been a 30 percent climb in share price since Eric put the company on his watchlist. But the semiconductor field is notoriously cyclical what goes up generally will come back down. Eric’s waiting for a pullback on price to make a purchase.
And one he bought
After an extended wait, he found such a pullback on Cirrus Logic, a semiconductor company that became the first purchase in his Rising Stars portfolio. The company targets more customized, complex, high-end audio chips that can offer better audio quality, a smaller size, and superior battery life to the gadgets they’re in.
“That’s a great position to have leadership in, because if there’s one thing that small and power hungry smartphones crave, it is power savings and smaller chips, he wrote. “Take, for example, Cirrus’ relationship with Apple (Nasdaq AAPL), which has to be considered one of the company’s greatest success stories. Apple’s a company of uncompromising vision and quality when it comes to its products. Cirrus secured a single design win with the company in 2005, but thanks to the audio quality and power improvements that its components offer, Apple has expanded Cirrus products across its whole lineup. That kind of customer consolidation can be scary, but it also speaks to the quality of Cirrus’ designs and expertise.”
By making a purchase after the market looked less than favorably on a recent earnings report, Eric had the opportunity to get into a high-quality business trading on sale.
Article Source: Articles Engine