Last Friday, an Analyst at CNBC reported that the market was rotating back to tech stocks, one of the strongest groups of last year. He went on to recommend Seagate.
Seagate is up 10% this week on high volume and both HPQ and DEll just reported that they expect a major uptick in business spending on servers. Seagate has 60% share of the high margin enterprise drive market and receives over 50% of its sales from the fast recovering Asian market.
Seagate is sold out again this quarter which will allow it to optimize both product mix and margins.
Seagate just reported a blow quarter, saw its FY10 EPS forecast raised 40% to $3.37, and indicated that it expected demand to exceed supply for most of this year.
Yet, the stock is trading at a PE of just 6, versus its historical PE range of 9 to 13.For FY05-07, STX' average EPS was $1.53 and stock traded low to high $20s.
The outlook could not be better for STX:
1. STX just reported a record December quarter EPS, is likely to report a record March quarter and CY10 EPS, and just had it's best January ever. 2. Is a leader in an industry that cannot meet demand. 3. Is trading at a FY11 PE which is just half of its historical low end valuation. 4. For the first time in a very long while, its major OEM customers are discussing long term, 1-2 year, purchase contracts. 5. Is just starting to see a revival in its high margin enterprise business. 6. Despite the market correction, STX is one of the few tech stocks trading above its 50 DMA and has seen its money flow index move significantly up over the last 5 weeks. 7. Has been subject to persistent takeover speculation. 8. CEO indicated that STX could be buying back stock this year and is thinking about a way to reward long term investors. 9. Has recently seen investor sentiment shift to it and away from its major competitor.