Western Digital Corp. (NASDAQ:WDC)

For reference point and to allow for comments by others. As of the end of March, 2013.

ROE 25.13%
Trailing PE 7.51
PB 1.67
Div yield 1.70%

check out its numbers

I've been bullish on STX, so I guess I need to be bullish on WDC too. I don't believe the end is coming, as current valuations would imply. I think the opposite is true; I think cloud storage needs are going to make both of these companies explode.

Undervalued according to my intrinsic value calculations. The investing community has overreacted to the decline in demand for desktops/laptops vs. mobile devices and SSD vs. HDD with regard for demand of HDD. The shares of STX & WDC were already low following the flooding in Thailand in 2010 that affected component suppliers.

I actually came across this one on an Earnings Surprise Screen. WDC handily beat estimates with very strong sales (not just cost cutting). Upon further evaluation, WDC is generating healthy amounts of cash, sporting a high ROIC, and it looks quite cheap (even at moderate growth projections). I think this has a lot of upside. Let's see where it goes.

Strong core business plus starting a dividend

Jim Mueller

Extremely undervalued on YCharts. Revs, Operating Income, and Free Cash flow yield at all time highs and valuation metrics at all-time lows. Great buy, and I believe it is benefiting from Cloud computing and Big Data trends. I see that in my own enterprise.

ModBuf

The company has consistently made money and, although more expensive than Seagate on a P/E basis, has a strong buyback plan, more consistent earnings, a better, less leveraged financial position if further consolidation occurs and reports in a more investor friendly format.

Strong management team, especially now they have HGST under their arms.

The shift to SSD will be long and expensive.

Solid State drives were previously in severe need due to flooding in Taiwan. The market could not satisfy the demand so prices skyrocketed. This means there is a demand for SSDs that can be satisfied as manufacturers like WD ramp up mass production and reduce operating costs.

Plus it's currently undervalued :D

Stock has been punished recently by a downgrade and pessimism about the hard disk market for PCs. There is also a lot of talk about solid state drives overtaking hard disk storage. For people in the industry that really see what's going on, hard disk usage is gong to increase rapidly. What some people don't get it that even with tablets and the cloud, hard disk usage actually goes up. All that cloud storage has to go somewhere and hard disks are still the only viable cost effective solution and barring any radical breakthrough, will continue to be so for at least 5-10 years. For every terabyte of storage that a cloud service provides to a user, there needs to be 2, 3 and perhaps 4 terabytes of actual physical space and potentially even more due to data redundancy, backups and caching. I see petabytes of storage getting installed daily and the growth there is really high as older storage systems get swapped out for denser more efficient equipment. Another point about hard disks is that even with lower unit counts to the PC space, what matters a lot if the enterprise space where disk margins are much better than the razor thin margins that go into PCs. I believe the purchase of Hitachi's disk division was a brilliant move that will help WD's margins in the coming quarters.

Solid ROE. Love to see Rev's/EPS trending in the right direction and strongly at that. To top it all off, their balance sheet isn't leveraged....

Cloud computing will, contrary to what some may believe, increase the demand for WDC's space... you need drives for cloud computing.

cloud, cloud, cloud

The whole hard drive industry is looking pretty good right now. Cloud demand coupled with a rationalization of the industry supply chain following the floods in Thailand should durably improve pricing power for the industry.

Also, this industry has consolidated considerably over the past several years which is less of a concern then in the past.

I'm interested to see what tomorrow's earnings hold.

Personally I'm more excited about Seagate (actually own that one in RL portfolio) because I think they are treating their shareholders very well with significant buybacks and dividend increases which I expect to persist.

In spite of my preference for Seagate, I think Western Digital is worth a green thumb, too. Both will probably outperform the S&P over a reasonable time horizon.

There is certainly the risk of a collapse in margins once hard drive supply normalizes, but I think the risks there are less then what the market thinks.

I'm expecting a partial retracement of margins, but some of this margin expansion is likely permanent.

Also, for the high capacity storage that's going to be required to run the cloud, magnetic disk drives still enjoy a huge cost advantage over SDD and that is likely to remain the case for some time to come. Hard drives aren't going away anytime soon. They soon may not reside in personal computing devices anymore, but the cloud will be filled with them. In that sense they aren't going away, they are just changing location. Even the death of the PC/laptop is probably a little bit exagerated, though I wouldn't underestimate the potential for rapid expansion and replacement by the mobile computing revolution. Residual PC sales will probably have a longer tail then what the market expects and the big growth is going to come from the cloud rollout.

Incredibly cheap at a 14 P/E, sub-11 P/FCF, and with piles of cash in the bank. If WDC gets anywhere near 20% long-term growth, this stock is a bargain.

Loads of cash plus aggressive revenue target...