A tech stock to own now

By Jon Markman

If you tweet or use Facebook, e-mail or instant messaging, you are to blame for creating the largest pile of permanent waste in the history of mankind. Nice going.

Never mind that your messages are ethereal wisps of digits and electrons and that 99% of them are useless a few seconds after they are created. They are 0s and 1s that will be stored on some disk drive somewhere whether you want them or not, ready to be retrieved by your grandkids, prosecutors and historians for all eternity.

A slew of companies have emerged in recent years to manage all of this digital excess, but one stands head and shoulders above the rest. And, amazingly, it is what investors call a "fallen angel," a once-great outfit that has fallen on hard times and yet has the capacity to rise again.

That company's shares may be the one stock that conservative investors need to own for the next few years, particularly those who are a little shy about the rapid recovery in share prices and the uncertainty of the global economy. Its value is already so bombed-out that everyone who wanted to sell it has fled, and now it's owned mostly by new investors who have taken a shine to its slightly scuffed appearance and are ready to dream again about how great it can be.

The company is data-storage specialist EMC (EMC, news, msgs), and I know it's going to be familiar to a lot of people, for good and for not-so-good reasons. Here's why it's so notorious, and why it is such a good bet now.

'90s nostalgia

During the 1990s, which I believe we are about to repeat, EMC shares put in one of the greatest advances in market history. The stock rose 65,450% from January 1990 to December 1999. Ten thousand dollars invested at the start of the decade was worth $6.5 million at the end, if you'd had the foresight and patience to keep it through booms and busts. Which, let's face it, would have been tough. I don't know about you, but every time I have a 10,000% gain, I feel like taking profits.What happened next at EMC was not a unique story. Excessive optimism crept into entrepreneurs' animal instincts, so new competitors crowded into its space with lower-cost offerings, and the ensuing price war crushed its profit margins. EMC, which was always known to have one of the best sales forces on the planet to go with its great product offerings, managed to annihilate those latecomers with brusque dispatch, but the damage was done: Once the pricing genie is out of the bottle, it's almost impossible to stuff it back in.

So after that amazing decade, EMC shares began a breathtaking collapse. And now, the once-godlike stock has tripped on leaden feet to fall 80% since the start of this decade. At the stock's peak, expectations got so out of whack with reality that investors were willing to pay more than 100 times earnings -- a superhigh price-earnings multiple of 125. But in the multiyear collapse, those expectations dwindled into a pit of despair, until the P/E multiple hit 10 in February. It's now around 18, based on my estimate of next year's earnings.

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That is very cheap for a company of this caliber with potential to grow 20%. You see, companies such as Procter & Gamble (PG, news, msgs) get a forward-looking P/E of 14, and the detergent maker is not going to grow much more than 5% next year, if that much.

EMC may be tarnished, but it has already begun to sparkle a little bit in a few corners. What will make it worth your hard-earned dollars over the next few years?

Expectations are still fairly low, which is always the key to future success in the market. Most analysts expect the company to earn 84 cents a share next year, which would amount to fantastic 32% growth over 2009. But I actually think that's too low coming out of a very low base and that the company has a very good shot at earning $1.10 a share next year.

Continued: Growing again, steadily

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