Western Digital: Ignore the Negative Headlines

Last month I predicted a breakout for Western Digital (WDC) and the stock has indeed risen from $19 to a 52 week high of $23.30 in July.

The Reuters headline for the company's latest quarterly earnings was "Western Digital net rises on tax benefit". Forget the fact that revenue increased to 1.4 billion for the quarter (from 1.1 billion in the year-ago quarter) and 46% of revenue came from consumer electronics products, and products other than desktop hard drives. If you subtract the one time items for this quarter the disk storage maker still had net income of roughly 38 cents per share, at least a penny or two ahead of last year's June quarter (minus one time items)

We will have to see what analysts make of this quarter. Perhaps they will say they are concerned about product price declines (which is normal for the back to school season every year). They may say that 46% was not a high enough quarterly improvement from 34% last year, and that Western Digital is still too dependent on PC sales. Also, let's not forget the predictions that flash memory is going to wipe out disk storage.

My recommendation is to ignore the not-so-positive headlines and get in on a long-term success tech story with a PE under 11, still below Seagate (STX). I look for this stock to break out to the high 20's later this year as institutional investors turn from banks, and private equity, to the tech sector, which has been generally stagnant since 2001, except for Apple (AAPL). At this point I would sell Apple and buy WDC.

Disclosure: Author has a long position in WDC

WDC 1-yr chart