4-Star Stocks Poised to Pop: Western Digital

Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, disk drive specialist Western Digital (NYSE: WDC  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Western Digital's business and see what CAPS investors are saying about the stock right now.

Western Digital facts

Headquarters (founded)

Lake Forest, Calif. (1970)

Market Cap

$5.56 billion

Industry

Computer storage and peripherals

Trailing-12-Month Revenue

$9.85 billion

Management

CEO John Coyne (since 2007)

CFO Timothy Leyden (since 2007)

Return on Equity (average, past 3 years)

31.8%

Compound Annual Revenue and Net Income Growth (over past 3 years)

21.7% and 34.8%

Cash/Debt

$2.7 billion / $400 million

Competitors

Seagate Technology (Nasdaq: STX  )

Hitachi (NYSE: HIT  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 94% of the 346 All-Star members who have rated Western Digital believe the stock will outperform the S&P 500 going forward. These bulls include my fellow Fool Eric Bleeker (TMFRhino) and dmccartney, both of whom are ranked in the top 2% of our community.

Late last month, Eric tapped Western Digital as a completely oversold situation:

Fact is, the threat of SSD's (solid state drives) is overblown. I don't deny that SSD's will have their place, but there still needs to be cheap ways to store data, especially in large enterprises. ... That bargain basement price isn't deserved. Its balance sheet is also the best in the industry.

To be sure, Western Digital's sworn rival, Seagate Technology, has also seen its shares slaughtered recently on the sharp decline in hard drive pricing. Over the past three months, both stocks have traded basically in tandem, plunging more than 35%. Of course, when you consider that the two companies share about 60% of the hard drive market evenly (Hitachi comes in third with about 17%), and now sport paltry price-to-earnings ratios of under five, it's easy to see why Fools see value in both stocks.

However, with Western Digital carrying most of the recent market share momentum, CAPS All-Stars like dmccartney give it the edge, going forward:

This is a well managed hard-disk drive manufacturer who is rapidly taking market share from the industry leader Seagate. ...

The recent price decline is apparently coming from concerns about the future viability of hard drive technology as solid state drives become more popular, and the concern over shrinking profit margins. I think these concerns are overblown because: 1. The company has strong cash positions and little debt which should enable it to enter other more lucrative markets as the opportunity arises. 2. It's already doing a good job of reducing it's cost and is even increasing market share in an industry with decreasing sales prices. 3. Hard drive technology is not going away anytime soon.

The stock is a true value play. ... Mr. Market has priced the stock as if the company is about to go out of business, but there are no serious problems that should warrant this low a price.

What do you think about Western Digital, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.


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