Western Digital Corp. (NASDAQ:WDC)

CAPS Rating: 4 out of 5

Western Digital Corp. designs, develops, manufactures, and sells hard drives for data storage.

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9
Player Avatar TMFRhino (98.20) Submitted: 7/20/2010 11:34:37 PM : Outperform Start Price: $31.55 WDC Score: -15.37

Hard drive makers are seeing insane valuations right now. Fact is, the threat of SSD's is overblown. I don't deny that SSD's will have their place, but there still needs to be cheap ways to store data, especially in large enterprises. WDC trades at around 3.5 X EV/FCF despite having a favorable outlook. That bargain basement price isn't deserved. Its balance sheet is also the best in the industry. I'd be absolutely shocked if WDC didn't outperform in the long run.

This is a top pick. I have extremely high conviction from these prices.

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Member Avatar JustHanginOut (54.74) Submitted: 7/21/2010 10:39:04 PM
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I have an upthumb on WDC as well and agree with all your points, but how do you think streaming video is going to affect the consumer market of which WD is a large part of? I've always operated under the assumption that things are getting bigger and bigger and people will always need ways to store them, but now with streaming and to a lesser extent cloud services I think we might start to see some slowing growth in this field. Not to mention the proliferation of tablets and netbooks along with the death of the PC.

Member Avatar CaptChamp (< 20) Submitted: 7/22/2010 1:39:31 PM
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22 Jul 2010

Can you help me understand why WDC's stock is down so hard?

Member Avatar rockbox64 (22.34) Submitted: 7/22/2010 4:05:39 PM
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In fact, the P/Es are down so far on both WDC and Seagate that it tells me something just isn't right. If something is too good to be true, than it is. There looks to be no growth going forward, though. A dividend might be appropriate here. I've been watching WDC forever and the thing just will not move. Earnings were good despite the miss. I just don't understand the low P/E and I don't wanna buy when I can't understand.

Member Avatar dnblack (78.76) Submitted: 9/28/2010 2:25:02 PM
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I am hugely bullish (and long in RL) on WDC. I have a question though that I have not seen addressed in any other articles:

What do you think the effects of the Chinese export ban on rare earth metals will be on hard drive makers? I know that they all use neodymium-iron-boron magnets and this seems like it could be a significant problem with neodymium prices increasing from $20/kg last Sept. to $80/kg today. My understanding is that there will be at least a couple year spin-up time to get American rare earth mines back to full capacity.

I have also been lead to believe that the only alternative magnet types that are comparable in strength (as measured in remanence) are samarium-cobalt and AlNiCo magnets. Samarium is mainly found in the same rare earth mines so it is in the same boat as neodymium. AlNiCo is easier to produce domestically but must be used in larger magnets (equating to larger hard drives... against the size trend) to reach the same strength.

Any thoughts?

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