Grab This Before Wall Street Gets Wise

11 | By Michael A. Robinson

It’s a company that targets some of the hottest sectors in technology.

And its growth potential is immense.

But the company isn’t a household name.

So you can fly under the radar – but still have a pretty good shot at doubling your money on this well-run, high-tech leader.

Let me tell you all about it – and demonstrate how my five rules for generating wealth from tech stocks helped me find it.

A Key to Success

If you want to make money in tech stocks – or any stocks, for that matter – find a company that makes products its customers can’t do without.

That’s certainly the case with the Silicon Valley leader I’m going to tell you about today. This storied firm makes products that much of the global tech industry simply cannot do without.

In fact, if you use a smartphone, a tablet computer or access a cloud-based application, the odds are good you have contributed in some way to this company’s huge revenue stream.

The company that I’m talking about is SanDisk Corp. (NasdaqGS: SNDK), a Milpitas, Calif.-based company that’s best-known for its core competencies in memory-storage devices.

One of the things you have to immediately like about SanDisk is the fact that it’s targeting two of the hottest sectors in tech: Cloud Computing and the Mobile Wave.

Either trend alone would be enough to really drive the stock’s price. But put them together and you end up with pure magic – and the opportunity to double your money with a relatively modest level of risk.

Maintaining that risk-reward balance is the chief objective of my Five Tech-Wealth Investing rules.

And as we’ll see in a moment, SanDisk meets every one of them.

Two Big Catalysts

Let’s start by looking at how this company is raking in the cash by riding the Mobile Wave.

As you’ve heard me note in the past, mobile devices are outselling PCs by a factor of 5-to1. In less than five years, Google Inc. (NasdaqGS: GOOG) alone has activated some 900 million devices that use its Android operating system. The tech giant says it is turning on some 1.5 million devices a day.

Meantime, Apple Inc. (NasdaqGS: AAPL) may lag Google in unit sales but it’s still a major mobile force. It boasts 42% of all U.S. smartphone sales, and in this year’s first quarter accounted for 39% share of tablet sales.

Despite their different operating systems, all those tablets and smartphones have one key factor in common. They rely on solid-state devices known as “flash memory.”

Flash memory is critical for the success of mobile devices for a very simple reason: It truly puts the “mobile” in mobile technology.

Here’s why. Mobile devices – which are likely to be banged about, bumped and dropped – simply won’t be able to keep operating with the same kind of spinning hard drive you find inside most laptops or desktop PCs.

And it’s not just the durability factor that is so important.

Size also matters.

Flash-memory technology is much more compact than its afore-mentioned counterpart. And that means mobile devices can be made incredibly small and still operate as the perfect storage system for music, photos videos and more.

Thus, mobile sales are one of two big reasons why SanDisk is shipping roughly two million memory devices a day. The other: Virtually every major maker of handsets and tablets uses its products, SanDisk says.

If that’s all SanDisk had to offer, it would still be a winning investment. But it also plays a vital role in Cloud Computing, data and applications run from hosted remote data centers rather than on proprietary corporate computer networks.

SanDisk makes solid-state drives (SSDs) that are replacing disc drives in data centers all over the world. SSDs offer two major advantages over conventional spinning hard drives: They run faster … and they consumer a lot less power.

A standard hard drive can handle about 180 data reads and writes per second. But SSDs run roughly 220 times faster – each second conducting some 40,000 read-writes.

With SanDisk’s help, data centers are slashing their energy use. Hard drives consume about 15 watts of power; but SSDs use just 1 watt. Industry analysts say this stat alone explains why most of the major cloud computing firms are making the switch to SSDs.

And SanDisk is capitalizing on that transition. Sales of SSDs have recently doubled to 20% of overall sales.

Hitting on All Cylinders

With a market cap of roughly $13.8 billion, SNDK trades at less than 11 times forward earnings, a discount from the average of nearly 15 for the Standard & Poor’s 500 Index.

And my analysis shows that SanDisk is angling to double its share price from its current level at $57.

Let me show you why by running it through the “five filters” that comprise my tech-investing strategy. They are:

  • Rule No.1 – Great companies have great operations: We look for well-run firms and that starts with great leadership. SandDisk CEO Sanjay Mehrotra is a rare breed of executive. He’s not just an “engineer’s engineer;” he’s also become quite adept at leading a global enterprise whose core customers are themselves some of the world top tech firms. Earlier this year, he received the 2013 Outstanding Alumni Award in Electrical Engineering from UC Berkeley, one of the world’s top public universities. He co-founded SanDisk back in 1988 and personally holds 70 tech patents.
  • Rule No. 2 – Separate the Signal from the Noise: If you really want to create wealth, you have to ignore the Wall Street Hype Machine and find companies with rock-solid fundamentals. That’s clearly the case with SanDisk. For this year’s second quarter, the firm’s sales jumped 43% to a record $1.48 billion. Earnings were just off the charts – and soared 1,915% to $262 million. The company earns 19% on operations and a 10% return on equity (ROE). It generates $833 million in yearly free cash flow (FCF).
  • Rule No. 3 – Ride the Unstoppable Trends: We look for stocks in red-hot sectors because they offer the best chance for life-changing gains. We’ve already demonstrated that the mobile tech is a trend that is sweeping the world. Cloud computing also is growing quickly. The respected research firm Forrester predicts this sector will increase from about $41 billion in 2011 to $241 billion in 2020. We’re talking total growth of 487% in just about a decade.
  • Rule No. 4 Focus on Growth: Companies with strong growth rates almost always offer the higher possible stock returns. SanDisk’s earnings-growth rate is somewhat inconsistent over the past three years. But we see a strong trajectory at this point.
  • Rule No. 5 Target Companies That Can Double Your Money: This is where we examine a firm’s projected profit growth and create an estimate of how long it will take for the stock to show gains of 100%. I’m projecting an average earnings growth rate of 15% over the next five years. If we just used that ratio alone that would indicate a doubling in about 4.8 years. However, I believe SanDisk shares will trade at the market’s average forward Price/Earnings (P/E) ratio of 15 well before then. I’m projecting 2016 earnings of $7.95 a share, for a target price of $119. It helps that the stock is cheap. The so-called “PEG” ratio – the Price/Earnings to Profit growth ratio – is 0.47. Anything under 1.0 is getting into bargain territory. When you get down below 0.5 – well, that’s the market equivalent of a “blue-light special.”
  • Given that SanDisk meets all five of my demanding criteria for stock selection, it’s a very solid profit play – so solid, in fact, that I would rate it as a “foundational play” that can help form the basis of a very good investment portfolio. All that, despite the fact that it will be much less volatile than some of its small-cap brethren.

    This is the kind of stock you want to hold for the long haul. I’ve found over many years of tech investing that a well-performing portfolio must have a solid foundation. And it all starts with base of great companies like SanDisk.

    [Editor’s Note: Speaking of building a well-performing portfolio…
    Many of you have been asking for specific strategies for playing my top tech recommendations. Well, I wanted to let you know I’m putting together something really special. Something that will provide you with step-by-step guidance on individual plays. I can’t wait to share it with you. I’ll give you more details as we get closer to the release date.

    As always, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.]

    11 Responses to Grab This Before Wall Street Gets Wise

    1. bob paglee says:

      My P&F chart shows a low-pole buy signal at 57 after the failure of a spread double top and a low-pole drop down to 53 followed by a reversal rise to 54 on Aug 1. The chart also shows a nice, consistent rising support line starting from a low of around $32 in July 2012. My candlestick chart shows a golden cross of ST vs LT volume today at around 58 and MACD improving upward and now almost totally recovered. After its big sharp drop, it has consolidated for about 7 market days at around 57 to 58. I believe there have also been announcements for a share buyback and new dividend. I just bought 100 shares at $58.30.

    2. Richard Waldren says:

      Thank you Michael. Your spin is pretty much different than what you get from the regular news outlets.

    3. John R Stockhausen says:

      RE: Michael Robinson, Per to dividend stocks, I know here is a (Pre date & a Post date) you have to buy the stock. Are you able to tell me how I can find out what both dates are on any dividend stock I might buy??? If you could send me some kind of Website, this would be super.
      Thanks so much for everything,
      Sincerely Yours, John

      • Michael Robinson says:

        Hi John,

        Great question. The fastest and easiest way I know of to do this is to go to Yahoo Finance. Type in the ticker symbol. That will take you to the overview page. Then hit the Key Statistics link on the left hand side. The information you want is at the bottom of the right hand column of the stats page under the headline Dividends & Splits.

        There at the bottom of that table you will find the dividend payment date and the “ex-dividend” date, generally the last day you can buy shares and still get the quarterly dividend. Also, it never hurts to go to the company’s investor section of the website and double check there if you want to be certain.

        Hope that helps,


        • Dave says:

          Actually EX-dividend means ‘without’ dividend so it is the first day that the dividend is no longer available for someone purchasing the stock.

          To get the dividend you MUST have purchased the shares by the end of the previous trading day.

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