Is This Tech Trade Just Too Hot?
An M&A scramble among some old-school tech companies has caused quite the share-price flare-up in the date-storage biz, Cramer noted on Wednesday. But is there a way for investors to capitalize on it?
What’s happened is that industry stalwarts like Hewlett-Packard , Dell and IBM are stretching into the server and storage space because the corporate information-technology business has gotten cramped. They need to find new ways to compete for those corporate customers, and offering them a one-stop shop for all their IT needs is the answer.
Hence the outlandish bids by the first two for 3Par last month, before HPQ won with its $33 a share offer, a 242% premium to the stock’s price before the bidding began. And IBM just bought Netezza for $27 a share, valuing the company at an awesome—in the truest sense of the word: inspiring awe—177 times earnings.
Granted, the storage biz is where it’s at. Especially when you consider that the amount of data stored worldwide doubles every 18 months and is expected to jump 800% by 2015. So it makes sense that larger bellwether techs would want in. And it also speaks to the strength of the business on its own, and it makes a solid case for why you’d want to own a storage stock for its inherent strength, rather than just as a takeover play.
And Cramer sees some winners in this category, too. Compellant, Isilon Systems, CommVault and Teradata are all noteworthy companies. The problem, though, is that their stocks have run too much. Everybody’s speculating on who will be the next takeover target, and as a result these four are trading at an average of over 46 times earnings.
You also have to ask yourself: Do you really want to bet on, as Cramer called them, “a bunch of seemingly desperate, stupid, old hardware companies” desperate to catch up with high-flying names like Salesforce.com and VMware ? Probably not.
“I think you’re gaming the ungameable here,” Cramer said. “If somebody at Hewlett-Packard or Dell comes to his senses or her senses, then this bizarre game of musical chairs is going to come to an end.”
So while the fundamentals of the data-storage business are sound, the stocks themselves look too hot to handle. Cramer’s best advice? Either wait for them to come down in price, or just pass on them entirely.
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