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Many stocks have bounced back from oversold levels last week, but the majority continue to have poor charts and trade below some key moving averages.  One name I identified a few weeks ago as "very interested in" was Seagate Technology (aytoinvest.com/quote/STX">STX) - who is not in the same boat.  After breaking support temporarily it has surged back over all key moving averages; a nice sign of strength.  I had put in a very aggressive limit purchase order at $15.50 which I missed by about a dollar.  If the market rolls over, perhaps we'll get another chance.  In a more stable market, or if the S&P can regain 1115-1120 I'd be more than willing to jump in right here.


Seagate is a cyclical tech stock, making hard drives.  It doesn't sound sexy but frankly this is another oligarchy with Western Digital (WDC) the main competitor.  Together they control about 60% of the market; as "citizens" we prefer much more competition and less of a stranglehold on any market by just a few industry giants - but as investors oligarchy is our best friend.

After a lot of missteps the past few years at Seagate, both companies are doing well with some outstanding earnings reports but Seagate has the better chart and valuation.  I assume that valuation discount comes from the stumbles of management over the past few years.

Seagate posted a huge beat on earnings on the 20th of January - bringing in $1.04 v analysts $0.66 as their gross margin exploded higher. Their full year, ending in June 2010 is now up to $3.38 up from $2.27 just a few weeks ago.  So it is "dirt cheap" - but much like a commodity sometimes you want to sell when these names are cheap (as that's a cyclical top) and buy when they are expensive (at earnings trough).  It's just hard to dismiss a stock trading at .... 6x forward estimates.  Not a stock to hold forever, just as you don't hold onto Caterpillar (CAT) through the entire business cycle but perhaps can squeeze another 3-5 quarters out of these hard drive makers.

Quick review of last earnings:
  • Seagate Technology (STX) blasted past expectations on aggressive cost cutting and buoyant demand for servers and personal computers over the holidays, lifting its shares more than 10 percent.  The results and a higher margin outlook underscored hopes that disk drive makers such as Seagate and rival Western Digital (WDC) will benefit from a resurgence in corporate technology spending in 2010.
  • Revenue rose 33 percent to $3.02 billion from $2.27 billion.
  • The world's largest maker of disk drives posted a gross margin of 30.5 percent in its fiscal second quarter. Seagate Chief Executive Steve Luczo said he expects the company to operate above its stated target gross margin range of between 22 percent and 26 percent in 2010.  "If you'd asked me a quarter ago, the ceiling was 28 percent -- that was the highest we ever did," said Seagate Chief Financial Officer, Patrick O'Malley, adding that given the supply constraints and the company's positioning in the market, he doesn't expect margins to go above the second quarter's results.
  • "They were able to do this without a recovery in demand," Needham and Company analyst Richard Kugele said.  Disk drive demand -- which was pummeled in the recession as corporations and consumers curtailed spending to conserve cash -- was showing signs of a gradual recovery, analysts say.
  • Wedbush Morgan analyst Kaushik Roy said 2010 will likely be the "year of the hard disk drives" as demand improves and pricing is expected to be "healthy at least for the next couple of quarters." The analyst, who rates Seagate "Outperform," raised his target price to $25 from $22.  Roy called Seagate's outlook a pleasant surprise and noted the company indicated that demand for hard disk drives in every segment "is likely to remain strong in the next few quarters."  "Despite the steep run-up in the (Seagate) stock we would encourage investors to buy the stock at these levels," he wrote in a note to investors. "The stars are all aligned for the (hard disk drive) industry and for (Seagate) at this time."
Guidance:
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No position but stalking it

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