"Opportunity is economy of scale."

-- Christina Nikolov

Name/Ticker: EMC Corp. (EMC)

Date: January 2, 2003

Opinion: Bearish

Current Price: $6.35

Target Price(s): $4.00, then possibly below $2.00

Commentary:

Over the past three months, Wall Street's prognosticators slashed their 2003 earnings estimates for EMC Corp. (EMC) by 46.9%. Regardless, the shares are now 30.1% higher than they were three months ago and tout a p/e multiple of 173 based on fiscal 2003 projections.

EMC soared 109% between the October 4th low and the December 2nd peak, then quickly surrendered about 25% of its market value. That decline pushed this issue back to some minor support near $5.75. (chart #1)

Now that this stock is rapidly approaching an overbought condition on a daily basis, we expect any upside to be limited to one of the following levels: The 200-day moving average (currently at $7.20) or the December 2, 2002 peak ($7.70).

Anyone who feels EMC is cheap primarily because it's trading 94% below its September 2000 peak of $104^15/16, is grossly mistaken. Consider the following: On December 4, 2001 we published a list of 29 companies which we deemed to be overvalued. EMC, which was fetching $17.20 at the time, topped that list with a p/e multiple of 176 based on fiscal 2003 earnings. Over the ten months, this company's shares plunged 78%.

If EMC endures a decline similar to last year, the stock will be fetching $1.40 later this year. It sounds absurd, but can easily happen if a turnaround fails to materialize.

To profit from this anticipated decline, we suggest the July 10 put (Symbol: EMCSB), which is currently offered at $4. If the underlying security overtakes $7 in the coming days, this option might fall as low as $3 or $3.50.




Chart(s):

#1) EMC Corp. (EMC) Seven Month Daily Chart

Click the Chart for an Enlarged View