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On Sunday the “Technology Trader” section of Barron's discussed Seagate (NASDAQ:STX) and Western Digital (NASDAQ:WDC), whose shares were down 16% and 11% respectively, YTD. Some analysts have even suggested that flash memory could completely replace drives in PCs, and put Western and Seagate out of business. But PC sales are doing just fine. A major factor is its cost, which is why it is not going to replace disk drives globally for years to come.

Once investors come to appreciate those facts, Western Digital shares could appreciate another 20% or more. Western is cheaper than Seagate by a wide margin, and is trading at a 2-y-low P/E multiple of about 9.4x the next four quarters' estimated profit. It is below its 5-y median of 11.6x, while Seagate is near its median of 12.2x.

"Western has an attractively valued stock for a company that is one of the premier players in a market that's set to grow at least 10% a year for several years," says Citigroup analyst Paul Mansky, referring to the expected ramp-up in disk-drive unit sales. Mansky thinks that Western Digital is "a technology laggard by design," and that some investors underestimate Western Digital's strategy of gaming the technology curve to turn in profits and steady cash flow.

STX vs WDC 1-yr chart
STX vs WDC 1 yr-chart

Source: Seagate and Western Digital: 2 Stocks Worth Watching