One Equals Two

Perter Lynch, one of the greatest investors of our time and manager of the famous Magellan mutual fund, identified several types of homerun stocks. One of the type he likes is when a company owns majority stake in another fast growing company yet that company itself hasn't seen too much growth in stock price. Here is one that we and some other people discovered recently.

VMware, Inc. (VMW) is probably one of the most successful IPO recently. The virtual server software maker which was priced at $29 at IPO saw its stock jumped 100% to almost $58 on first day and continued to climb and is now trading at $83 per share. Waiting until the stock to fall? Well you may have to wait for quite a while. And is it still a good time to invest? Well hard to say especially with the P/E ratio of 220.69.

No it's not VMware that you want to invest at this point. EMC(EMC) the parent company of VMware owns 90% of stake of VMware with a more manageable P/E of 34.15. Speaking of market cap EMC at this point has $43.38 billion while VMware is not that far behind with market cap of $31.82 billion. And although stock price of EMC has grown almost 100% from $12 last year to $20 today, the potential of its business plus ownership in VMware makes it a still very attractive buy.