Computer Peripherals and Less Interesting Components
Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I just underwent a pretty massive upgrade to my computer. Other than the processor and the chip on my graphics card, all the other components were from companies that command less interest than Intel or Nvidia. Many of the components were supplied by private companies, but a few were public. A few others were only on foreign exchanges.
Logitech International SA (NASDAQ: LOGI) supplied my fancy keyboard with the LCD and the wireless game-pad. I was also looking at a universal remote control by the company as well. Lots of cool little products that are partly necessary whilst being partly indulgent. The question is whether Logitech is a good investment. Despite liking the products I think I will have to refuse, because of the rise of laptops and now tablets. Peripherals are not as peripheral as they used to be. All these various products are now integrated into the machine itself. Webcams, mice, and keyboards are not common purchases anymore. Tell anyone who is not a gamer, graphics designer, or CAD drafter that you have a desktop and they think you are a dinosaur.
Even for the small, niche desktop community changes are in the works. Have you seen the Leap Motion? I do not think it will replace mice, but it does show that Logitech needs to get on the innovation train. The other problem I see is that nothing it makes is ultra unique. Game-pads, speakers, and keyboards are made by so many companies. I once bought Logitech speakers because they were on sale. Audiophiles might go with Bose.
Logitech is a company whose stock can go up if the economy starts improving. That describes most stocks though. With a 3-year return of almost -55% it is clear that Logitech has not benefited from the market recovering. At least it has no debt, and a current ratio near 2. The company is not about to go bankrupt any time soon. It also has a new CEO taking over in 2013. The introduction of new blood is always a good thing when a company is slogging along. Logitech is still not past the point of no return. The lack of debt gives it some flexibility.
Hard-drives do not really have the technological glory that they used to. Even if a 10TB hard-drive comes out it will not be a big deal. Solid state drives are the next way to go. They are like flash memory and instead of storing data magnetically like normal hard-drives, solid state memory is stored electrically meaning that there is little to no seek time. All the data is available instantly. For the cost and size constraints it is not worth it for mass storage of documents and the like, but for applications and the OS it might be useful.
Seagate Technology (NASDAQ: STX) makes all kinds of hard-drives. They also make the streamer I use for Netflix and the like. Hard-drives are a mature technology and Seagate mirrors that with its nice dividend with a yield of 4.68%. Seagate looks good with $2.2 billion in cash, a 22% profit margin, and almost $3 billion in net income (ttm). The thing is that I expect weakness going forward. Not enough to tank the company, but enough to adversely affect the stock price. It will be after the market has digested the fact that the economy is not all rainbows and puppies that I would consider grabbing Seagate. Perhaps cash-secured puts are in order.
Seagate needs to put a stronger focus on solid state drives. A quick browse through Newegg will reveal that Seagate hard-drives use classic technology. Seagate has quite a bit of debt with the ratio at 0.8187. I would have preferred that they have debt to spare if they wanted to grab some company with an innovative new solid state technology.
With a history of increasing dividends and an already impressive yield Seagate is definitely on my list. Hopefully looking at the potential for covered calls will show that I can boost the return on the stock further. Then when the market improves and after Seagate gets into solid state drives with conviction, the stock price can start to appreciate.
Logitech is interesting, because it has the financial flexibility to effect some kind of change. With new leadership it might do something interesting. I would not jump in, but I would keep it in mind. I would be curious to see what it is up to for the future. Seagate looks very good, and since I think the near future might be a bit bleak, cash-secured puts seem like a great way to take a position. Really it is up to each individual to decide how low Seagate would have to be in order to warrant a buy.
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TheArchivist has no positions in the stocks mentioned above. The Motley Fool owns shares of Logitech International SA (USA). Motley Fool newsletter services recommend Logitech International SA (USA). 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.