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Western Digital: Undervalued and Underappreciated

Historically, disk drive companies have traded at a low P/E.
Disk drives are commodities and this industry used to be very cyclical and competitive. However, in recent years a lot of consolidation has taken place. It's now dominated by only 2 companies: Western Digital and Seagate.
Therefore, I think it's deserving of a higher P/E.

Disk drives are a commodity that's needed by everybody around the world. China doesn't just need iron and coal; it also needs disk drives!

Western Digital has executed very well. They've gained market share. They are a low cost producer. They've made a good transition to perpendicular recording. Last year they picked up Komag at a low price. Recently they've made a big advance in the smaller drives used in laptops. That's giving them a big boost.

Longer term you have to consider the impact of solid state disk drives. I think conventional disk drives will continue to remain far cheaper and the best solution for storing large files such as HDTV movies.

These are some reasons why I've picked up shares in WDC. My 12 month target price is $40/share. A spoiler could be a global economic recession (which is not occurring yet despite the problems in the US).