Seagate Technology at a Glance

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Seagate Technology ) is a large company that operates in the controversial hard disk drive (HDD) business. I say controversial because this particular business has stirred a lot of questions  over the last three months, and speculation has driven its shares lower. However, the company is now recovering and looks as though it would make a great long-term investment.

In the months of October and September Seagate was downgraded five times. A weak PC industry and discouraging guidance from companies such as Intel and Hewlett Packard created pessimism. There have been a lot of investors, and followers of the space, who have been frustrated by the company’s unwillingness to enter the solid state disk (SSD) business, which is growing fast, and many believe has more promise. However, with the company continuing to grow rapidly, and being very shareholder friendly, the stock appears to be on the right track, and the company seems to be making all the right moves.

Seagate at a Glance

Seagate is a $10 billion company that is reliant on the PC business. The company’s stock has rallied over 65% in the last year, therefore some don’t believe it has much more upside. During its most recent quarter (the one that was expected to be bad) the company improved its sales by 33% and its income by 315% year-over-year. However, it still trades with a P/E ratio of under 4.0 and a price/sales of 0.70. This indicates that not only is the stock cheap, but may be a good buy because of the company’s growth.

Aside from aggressive growth and a cheap stock, the company is investor friendly. The company not only pays a yield of more than 4% but also aggressively buys back shares. The company has said that it plans to reduce its share count by 250 million by 2014, which creates further support for investors.

Unfortunately, Seagate does not benefit from the growth of tablets or smartphones like SDDs. Seagate is a storage company, and it benefits from growth in the ‘cloud.' The cloud requires the storage that HDDs provide, therefore the movement to PCs and smartphones actually benefits a company such as Seagate because data is stored in the cloud.

In regards to PCs, we have not reached a point where tablets perform all the functions of a PC, therefore PCs remain a necessity while tablets are a luxury. This means PCs will remain strong long-term even if the space sees temporary weakness.  Aside from PCs, Seagate has a presence in medical imaging devices, supercomputers, home entertainment, DVRs, game consoles, etc. In fact, the space is much larger than Seagate’s current presence, and is a global industry.

Conclusion

Seagate is now fast approaching $30, and if it breaks $30 it could attract buyers who sold during the stock’s downtrend. The long-term upside is large, and the actions of the company’s management are encouraging. Overall, it is a space controlled by both Seagate and Western Digital ). Both companies are growing aggressively, are undervalued, and present the same upside potential. However, Western Digital is not as shareholder friendly, because it does not pay a dividend. Yet despite the fact that Seagate does return more capital to its shareholders, Seagate still has better metrics and fundamentals. Like I said, both are cheap, and would make a good investment; it is a space that you should definitely explore. 

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BrianNichols owns STX. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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