Shares of Seagate Technology (NASDAQ: STX) fell 17% in October of 2018, according to data from S&P Global Market Intelligence. After following the tech sector 13% lower through the first three weeks of the month, a bearish analyst note sent the hard drive maker's stock down to the basement. Two days later, Seagate's share prices had dropped more than 12% lower.
On Oct. 23, analyst firm Susquehanna downgraded Seagate from "neutral" to "negative," arguing that the cloud computing market is swinging into a downturn. This is not a simple case of large cloud centers deploying their surplus inventories of storage hardware, but a real market shift that will impact Seagate "where it hurts the most." On top of that, Susquehanna analyst Mehdi Hosseini said that falling prices on NAND memory chips will let NAND-based solid-state storage devices (SSD) steal market share from traditional hard drives, whose only real selling point these days lies in their lower cost per gigabyte of storage space.
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This stock is trading at just 6.4 times trailing earnings today, and arguably for good reason. Seagate still doesn't have a credible strategy for moving into the SSD era of large-scale storage, leaving the company vulnerable to lower memory chip prices. Fellow Fool Leo Sun sees Seagate as a buy right now, coupling that bargain-bin valuation with an attractive 6% dividend yield. I respectfully disagree, keeping my hands off Seagate until the company comes up with a sustainable long-term business plan that doesn't rely on magnetic platters holding on to their cost advantages over SSD storage forever.
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