2 Stocks Hitting High Notes

• Report this Comment On August 20, 2009, at 8:42 PM, FoolSolo wrote:

  WDC keeps on rolling. This is already nearly a 3-bagger for me, with my entry at $12. There are a lot of things I like about WDC, not the least of which is their balance sheet. One of the key factors for WDC's great rise since January is their management, they were proactive in cutting cost and boosting their EBITDA. They are also investing in R&D and new products, and recently introduced 2-Terrabyte disk systems, the first on the market.

  A couple of weeks ago I bought a new WD Caviar Black 1-TB internal hard drive, with 32MB cache for my home computer. It was a snap to install. I ran a SQLIO test on it and it absolutely rocks compared to the OEM Seagate disk currently in my computer - 800% faster. For around $100 it was well worth it. That's merely $0.10 per GB of storage. Online you can get these drives for around $80, or $0.08 per GB. This is still way, way cheaper than solid state storage.

  Now, let's look at that balance sheet (March/09) for a moment... over $1.5B in cash , $824M in receivables, $385M in inventory (the lowest level all year - in a recession). They virtually have no debt to speak of, and they had $355M in cash flow from the quarter, up from $300M in the previous quarter.

  Indeed, their revenues and profits are trending down some, which is to be expected in the economic picture. But it's not like people are storing less data. Storage needs will continue to grow globally, in business and in personal systems. Companies and consumers may be putting off their purchases, which is evident from the revenue numbers, but that's the beauty of it.... those purchases will eventually come flooding in and WDC will make even more cash and profits.

  Furthermore, as form factors on computers continue to get smaller, while hungry applications keep taking more storage, the density and the size of hard drives will continue to lead the way in GB/$, and in storage capacity per inch of real-estate. That again signals that round, brown and spinning will be in high demand for a long time to come.

  There are some of the many reasons why I believe WDC still has significant upside potential and will continue to beat the market. In fact, I may add some more to my existing position shortly on any significant pullback.

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