Solid Plays on Hard Drives: Western Digital & Seagate

Focus: Technology

Igor Greenwald Image Igor Greenwald Chief Investment Strategist, MLP Profits

Between early 2015 and right about this time last year, shares of the two leading hard drive makers, Western Digital (WDC) and Seagate (STX), lost roughly two-thirds of their value, notes Igor Greenwald, editor of Investing Daily's Breakthrough Tech Profits.

And then a funny thing happened: sales stabilized (albeit at lower levels) as the PC erosion slowed and enterprise demand picked up. Corporate servers and data centers also use hard drives.

Solid-state drives’ penetration of this key market has been slowed by their higher cost and the sheer scale of the required data storage. Over the last year, both stocks have mounted a major comeback.

The larger Western Digital is the clear industry leader after its well-timed recent acquisition of flash supplier SanDisk. The deal gave it SanDisk’s half of a flash memory joint venture with Toshiba (TOSYY), and the potential for full control or other inducements since Toshiba is now selling its stake.

Seagate lacks the heavy flash technology investments of Western Digital, but also claims to have greatly limited the potential for further sales erosion by migrating into higher-end applications where solid-state drives aren’t a factor.

The recent divergence in the two stocks’ performance reflects a drubbing inflicted on Seagate in late April, after it offered a mostly in-line earnings report and tepid outlook following several quarters of resounding upside surprises.

But the company continues to be a cash machine, generating almost $1.5 billion in free cash flow over the last year.