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October 13, 2007 – Comments (2)

I noticed a post on some discussion board the other day about Seagate Technology, Inc. (NYSE: STX) which got me to thinking about how much things have changed in the world of data storage in the past seven years or so.

I remember having conversations with folks during the late 1990s when Iomega Corporation (NYSE: IOM) was all the rage. Their position was that Iomega was the defacto standard in storage technology and because of their proprietary technology, the stock would go up and up and up.

When it came to earnings season, company after company would report and provide guidance about future earnings, with one exception, Iomega. Iomega's management simply wouldn't comment about future earnings, current earnings, or how many holes it took to fill the Albert Hall. It was almost as if management was to...advanced, to provide such petty information.

Iomega stock is currently trading at about $5, which makes me wonder if management is as impressed with themselves now as they were 10 years ago.

At any rate, my argument at the time was that the defacto standard had yet to be determined, and while Iomega may be a stock that I might want to own, I certainly wasn't going to pay that much (I have no idea how much THAT much was) for a stock.

Eventually of course the bottom fell out of the market and technology stocks were no longer in vogue. The NASDAQ fell to under 1200 and for a time the markets seemed to be collapsing onto themselves.

Looking back, I have likened that period in the markets to September 11, 2001. It was simply not fun, unless you happen to be a value investor. So while fear, uncertainty, anxiety, anger, and even general chaos seemed to permeate the markets, folks like Warren Buffett and Walter Schloss were quietly setting themselves up to make a fortune.

What They Do

But as they say, life goes on. And so too have the technology markets, including hard drive manufacturer now digital storage manufacturer Seagate Technology.

Seagate makes disc drives, all kinds of disc drives, which are sold to computer makers for use in desktop and notebook computers, consumer electronics devices, corporate data centers, enterprise servers, mainframes, and workstations.

The company also makes products for mobile computing applications, digital video recorders (DVRs), and gaming devices, and external hard drives.

Recent Stuff

In May of 2006 the company acquired Maxtor Corporation, also in the digital storage business and today Seagate sells not only storage devices with the Seagate name but also with the Maxtor name.

Estimate

I have Seagate on my watch list with a reasonable value of $32, a buy target of $16, a first sell target of $31, and a close target of $34, all based on the company's latest 10-K of June 2007, and a 3-5 year hold.

Market Opportunities

The stock closed on 10.11.07 at $26.21, with overhead resistance at $28.51, first support at $25, and second support at $24.11, which works out to about a 9% appreciation opportunity and an 8% risk opportunity.

Opinion

I like the company. I've owned it twice, once as a NASDAQ company and once as an NYSE company, and I think management is on top of not only the company's operations, but future operations as well, which to me is always a strong signal that management is considering themselves as stakeholders.

I have seen several discussions on the web which place a value on the stock of about $40. The problem with a $40 value is that it takes into account earnings growth, which analysts have set at about 19%.

But what happens when that 19% earnings growth number is reduced to a more realistic 6%? When that happens, all of a sudden that $40 stock becomes a $24 stock, and if growth is removed altogether that $40 stock becomes an $18 stock.

Ah....the old buy high and sell low strategy, ey. Where's Maxwell Smart when he's needed?

Rating

I'm gonna give this stock an EYEBALL rating, which means keep a sharp eye and if the stock price moves up a bit consider selling a portion of your position. On the flip side, should the price fall by say 5% or so, consider closing your position and having a massage at the club.

Not a club member? Well, maybe you would be had you waited to buy this stock.

Wax

2 Comments – Post Your Own

#1) On October 16, 2007 at 8:12 PM, WhidbeyIsland (71.70) wrote:

When it comes to technology, I used to feel I was suffering from future shock. Now it's just plain shock.

 I am still gasping at flash drives replacing floppies. Now people are talking about flash hard drives replacing hard hard drives. Is there a leader in this technology? Is there money in it for more than five minutes?

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#2) On October 17, 2007 at 5:53 AM, wax (97.04) wrote:

Whid;

There are no clearly defined leaders, at least that I could find. If I were going to pick a leader, it would be Seagate. I would pick them because that's all they do. Most of the other companies in this sector do other things, which is fine I guess, but I don't know you become as good as you can be at one thing when you are trying to be equally as good at something else.

As to changing technology, my first computer used two 8.5" floppy discs and would store about the equivalent of 2 Microsoft Word files....less any graphics. But that was a huge improvement over a Big Chief tablet and a crayon.

Wax 

 

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