If you are still holding on to shares of Seagate Technology PLC STX in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.
Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. One such stock that you may want to consider dropping is Seagate, which has witnessed a significant price decline in the past six months and negative earnings estimate revisions for the current quarter and year. Further, the company’s Zacks Rank #5 (Strong Sell) only reflects its innate weakness.
Notably, the stock has slumped 32.7% in the past six months, compared with the industry’s decline of 20.2%.This can be attributed tosluggishness in hard drives demand and weakness in flash storage pricing.
Let’s delve deeper and find out what is taking this company down.
Here’s Why Seagate Should be Avoided
Seagate is the second-largest manufacturer of hard disk drives (HDDs) in the United States. The company is facing challenges owing to NAND flash pricing, which is currently on the decline on account of oversupply and weaker-than-expected growth in end-market demand. Consequently, a drop in prices could impact the company, and may offset the benefits from improved demand and prices of DRAM products.
The merger between Western Digital WDC and SanDisk has made it more challenging for Seagate to capture market share in the newer storage technology – SSD. The merger will lead to economies of scale, lower costs, greater market reach and acquisitions of new technologies, among other synergies, for the two major storage solution providers. This in turn will intensify competition for Seagate.
Moreover, Seagate faces stiff competition from Hitachi, Samsung and Intel INTC in the storage market.
Additionally, ballooning debt levels have been troubling Seagate over time. At the end of first-quarter fiscal 2019, net debt amounted to $2.88 billion. Moreover, any downturn in macroeconomic and foreign exchange volatility conditions is likely to make it difficult for the company to pay or refinance debts, going ahead.
Further, frequent management changes, though made with an intention of a turnaround, is raising skepticism.
For the full year 2019, we have witnessed five estimates moving south in the past 60 days. This has resulted in the consensus estimate to trend downward from $6.08 per share to its current level of $5.32.
Additionally, Seagate has witnessed four downward estimate revisions for the current quarter, dragging the consensus estimate down to $1.35 per share from $1.74 per share in the past 60 days.
So, it may not be a good decision to retain this stock in your portfolio anymore, at least if you don’t intend to wait for a long time.
Infineon Technologies AG IFNNY is a stock worth considering in the broader technology sector, sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Infineon Technologies is currently pegged at 8.6%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Seagate Technology PLC (STX) : Free Stock Analysis Report
Western Digital Corporation (WDC) : Free Stock Analysis Report
Infineon Technologies AG (IFNNY) : Free Stock Analysis Report
Intel Corporation (INTC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research