At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.
Hard drives and solid-state drives and Asian tigers (oh, my!)
But first, a little background. When Western Digital (NYSE: WDC ) announced last week that it was restarting hard-drive production at its hard-hit Thailand factories, the news surprised a lot of folks. It wasn't happy news for everybody, of course. Seagate (Nasdaq: STX ) , I'm certain, is grinding its teeth in frustration, as it now looks less likely to receive the gift of free market share for Christmas.
But for many other companies -- computer makers like Hewlett-Packard (NYSE: HPQ ) and Dell (Nasdaq: DELL ) , to name a couple -- the surprise was of the "pleasant" variety. Western-D's return to production suggests that supply interruptions won't affect PC manufacturers' ability to ... um, manufacture PCs quite as badly as had been feared. You can also probably count chipmakers Intel (Nasdaq: INTC ) and AMD (NYSE: AMD ) in the "pleasantly surprised" camp -- because if you don't have the parts to build the rest of the computer, it doesn't do you much good to buy the chips for it, now does it? In this respect, Intel's and AMD's health depend to a great extent on the health of the rest of the PC supply chain.
Random musings about random access memory
Speaking of which, there's one other company whose fate I've been curious about of late: SanDisk (Nasdaq: SNDK ) . In contrast to Western-D and Seagate, which build cheap, efficient hard drives for personal computers, SanDisk is part of the new wave of computer memory: NAND flash-based solid-state drives. Resistant to damage from dropping -- in much the same way that a disk drive isn't -- and fast as all get-out at loading the programs you want, SSDs have historically had another problem: They cost as much as 10 to 20 times what you'd pay for a simple hard-disk drive.
But what if there were no hard disk drives to be had? What if, oh, I don't know ... a freak series of floods washed over Thailand and suspended hard-disk production, drying up supply of this means of memory, or making it frightfully expensive to acquire parts when they're available? Might that be enough to make SSDs price-competitive, create enough demand to give the SSD industry real scale of production, cause prices to fall even more, and catalyze the wholesale conversion of memory from HDD to SSD?
I guess now, we'll never know.
What you don't know won't hurt you
No matter. You came here today to hear about upgrades, and upgrades you shall have -- an upgrade for SanDisk, as a matter of fact. At least one analyst thinks it's time to buy SanDisk today, Thailand or no Thailand.
Calling the company "the world's only pure-play NAND flash supplier," Nomura Securities announced yesterday that it's putting a "buy" rating on SanDisk -- and the reason has nothing to do with PCs. In fact, forget about PCs, which are so 20th century. In contrast, Nomura sees SanDisk as "well positioned to benefit from the fastest-growing segments in consumer electronics" -- smartphones and tablets, whose small size makes them suboptimal receptacles for bulky HDDs in the first place.
According to Nomura, SanDisk's SDD business benefits from "favorable supply/demand trends" as consumers gravitate to smaller, more mobile computing devices. Over time, "SanDisk should see better pricing and margins than the Street gives it credit for," too. As a result, while most Wall Street analysts believe that the company will earn about $5.03 next year, Nomura is moving to the head of the pack with projections of $5.80, roughly 15% above the consensus numbers.
Foolish takeaway
If Nomura is right about its numbers, then what happens in Thailand really shouldn't have much effect on SanDisk at all. Based on Nomura's projections, SanDisk is a company trading for 9 times forward earnings, but it's growing those earnings at about a 25% clip -- incredibly cheap, if it can maintain the pace. But even if it can't, Nomura points out, the stock's forward earnings valuation of 9 is still cheaper than the 13 forward P/E valuation more common in the semiconductor sector.
In short, it's not so much a question of whether SanDisk is a bargain. It is. The only real question is whether the bargain is "screaming" or just politely demanding our attention.
Looking for even more ways to profit from the movement to mobile computing? Read all about the Fool's favorite 3 Hidden Winners of the iPhone, iPad, and Android Revolution.
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