NetApp (NTAP): Liquid leader could be at a solid buy point


By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory 12/9/10 Sign up for free Cabot Wealth Advisory e-newsletter

Many liquid (i.e., well-traded) leaders, especially those in the technology arena—stocks like Priceline. com, Baidu, Apple, etc.—have been lagging the market during the past couple of weeks. And, frankly, many have been moving sideways for the past four to six weeks, thanks to the recent market pullback that came prior to this lagging period.

That action leads us to two possibilities. The first is that these stocks are actually building multi-week tops, and with market sentiment at nosebleed levels, are giving us an early indication of an upcoming correction. And you can bet that if I see more than one or two of these leaders decisively break below their 50-day moving averages on big volume, I’ll be peeling back exposure to the market in general.  

But, with that said, I think it’s too early to conclude these are tops. They could just be building new launching pads for another upmove! So, today, I want to bring up one of these stocks, which could be at a solid buy point.

It’s NetApp (NTAP), formerly known as Network Appliance (NTAP), and it’s emerging as the King of Data Storage. Sure, EMC and others are still big competitors, but there’s plenty of room for everyone. NetApp’s products appear better suited for the new cloud-computing reality, which has led to solid growth during the past few quarters as big corporations have ramped up their technology spending.

In the past four quarters, revenues have ramped higher by 36%, 33%, 36% and 33%, while earnings have gained 43%, 61%, 123% and 41% during the same time. In fairness, that growth is supposed to slow in the quarters to come, but analysts have been notoriously behind the curve with many names in this sector.

Chart-wise, NTAP’s relative performance (RP) line—which measures how the stock is performing relative to a major index like the S&P 500 or Wilshire 5000—has been basically flat since the last part of September, similar to many leaders. The stock itself took a brief hit three weeks ago when its earnings report (due after the closing bell) was somehow leaked in the last hour of trade. But the stock rebounded nicely after the conference call that night, continued to find support in the days ahead, and has begun to crawl higher in recent days.

The upshot: After a quick shakeout, NTAP looks to be finding support around its 50-day line for the first time since this rally began on September 1. If you’re game, I think you could buy, say, half of what you normally buy here, with a stop around 50-52. Then you could fill out your position if you see NTAP sport a good gain on above-average volume, which would tell you that institutional investors are building positions. If the market remains buoyant, liquid names like NTAP could have another leg up.



Mike Cintolo Michael Cintolo


Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly

A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.

 



NetApp (NTAP): At the Heart of Cloud Computing

By Michael Cintolo, Vice President of Investments, Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory 10/28/10 Sign up for free Cabot Wealth Advisory

In the current bull market, many of the true institutional-quality leading stocks were leaders of the last cycle … benefiting now from top management and (usually) some new product or service that is reinvigorating growth.  

An example of this is NetApp (NTAP), formerly known as Network Appliance, which is positioning itself as the King of Storage. Yes, EMC and others are still ultra-competitive in this field, but NetApp seems best able to serve the needs of large corporations as they move toward cloud computing.  Here’s what I wrote about NetApp in Cabot Top Ten Weekly back on September 13:

“On one hand, NetApp is a data storage company, and we know from experience that data storage stocks that fly to the sun often crash and burn. On the other hand, NetApp is at the heart of the biggest driving force of information technology buying today, the move to cloud computing. As this movement evolves, more and more institutions and individuals are finding that they can lower costs and increase productivity by storing their data somewhere in the cloud, and by using applications that are hosted in the cloud. And the simple fact is that no one knows how far this trend will go. As students of trend analysis, we know that trends typically go further than people expect, and thus we think the movement toward cloud computing—and NetApp—can go very far indeed. Revenues at the company have grown every year of the past decade, while earnings have grown every year save for 2009, and now earnings are roaring back. Profit margins in the second quarter were the highest in more than three years!”

The stock is very liquid (it trades eight million shares per day and the stock is priced in the low 50s), has good institutional support, and has been one of the leaders of the recent advance. Earnings are due out around November 17, which poses a risk, but I think buying a small position on any dip of a couple of points is worth it. NetApp offers opportunity as another bigger firm that has re-established itself as a leader during this bull cycle.


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NetApp (NTAP): King of Network Storage

By Michael Cintolo, Vice President of Investments, Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory 9/30/10 Sign up for free Cabot Wealth Advisory

My major thought process at this point is that considering the market’s September advance—which, remember, is coming on the heels of a four-and-a-half month, 17%-20% correction—has been so strong and so persistent that, at least for the best leading stocks, I believe any coming weakness is buyable.

Now, that doesn’t mean that if a big leader falls 20% on its earnings report next month, you buy.  No!  I’m talking about reasonable weakness … those normal pullbacks of 5% to 10% that can take place over a couple of weeks.  The “good” news for investors looking to do new buying is that earnings season usually brings volatility, and many leaders are beginning to look a little tired, which is normal after their straight-up rallies of the past few weeks.

One stock I think is definitely worth keeping an eye on is NetApp (NTAP). To me, this stock is one of a dozen or so “liquid leaders”-those stocks that trade hundreds of millions of dollars every day, so you know big institutional investors are trafficking in the stock.  Granted, it doesn’t have the name recognition of Apple or Baidu, but it has nearly as much potential.

Why?  Because it’s developed into the King of Storage, which, in this new cloud computing world, is a great thing to be.  Here’s what I wrote about NetApp in Cabot Top Ten Weekly on September 13:

“On one hand, NetApp is a data storage company, and we know from experience that data storage stocks that fly to the sun often crash and burn. On the other hand, NetApp is at the heart of the biggest driving force of information technology buying today, the move to cloud computing.  As this movement evolves, more and more institutions and individuals are finding that they can lower costs and increase productivity by storing their data somewhere in the cloud, and by using applications that are hosted in the cloud. And the simple fact is that no one knows how far this trend will go.  As students of trend analysis, we know that trends typically go further than people expect, and thus we think the movement toward cloud computing-and NetApp-can go very far indeed. Revenues at the company have grown every year of the past decade, while earnings have grown every year save for 2009, and now earnings are roaring back. Profit margins in the second quarter were the highest in more than three years!”

The stock has been one of the best performers since the market blasted off at the start of September, which portends higher prices down the road.  Like many leaders, NTAP is a bit extended to the upside here, but I think any pullback of a couple of points will be buyable.


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NetApp (NTAP): Data Storage Leader

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 7/12/10 Sign up for free Cabot Wealth Advisory e-newsletter

Until I actually see major market trends advancing again, I’ll be busing building my Watch List.

The newest addition to my Watch List is a company that used to be called Network Appliance (which always made me think of toasters), but is now called NetApp (NTAP).
 
NetApp recently earned an appearance in Cabot Top Ten Weekly—in fact it was named Editor’s Choice—and here’s what editor Mike Cintolo wrote:
 
“NetApp built the world’s first networked data storage appliance and has been a leader in the industry ever since; 49% of its business now comes from outside the U.S. Increasingly, the business is not just about storing data but about making it instantly available to users of virtual infrastructures or cloud computing networks. Properly implemented, these technologies enable more convenient and more reliable data access with reduced costs. Business in the industry slowed dramatically in the depths of the recession, though NetApp managed to continue growing revenues on a year-over-year basis. And this year the industry has come roaring back; analysts have been increasing their earnings estimates for NetApp for both 2009 and 2010. Furthermore, after-tax profit margins were 15.6% in the latest quarter, the highest in more than four years. Properly managed, this company could go far.” 
  
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Tim LuttsTimothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.