Western Digital Looks Like a Solid Long-Term Investment

Western Digital’s strong balance sheet and superiority over Seagate give it more room to flex its muscles in the storage market.

Apr 14, 2014 at 8:30PM

Data storage company Western Digital's (NASDAQ:WDC) shares were up by double-digits this year before being hit by the recent sell-off in tech stocks. However, the company has consistently performed well in the past few quarters, beating rival Seagate Technology (NASDAQ:STX) this year, and its prospects look strong due to the expected growth in its business going forward.

Investors should consider taking a close look at Western Digital for their portfolio since the company could be a long-term winner. Let's see why.

Pulling ahead
Western Digital is seeing strong momentum across its product portfolio. The company has a 45% share of the storage market, pulling ahead of Seagate's 40% market share. In the fourth quarter of last year, the total addressable market, or TAM, for hard drives grew by 6 million units year over year to 142 million.

That exceeded Western Digital's expectations for the quarter, in which it shipped roughly 63 million units. A robust performance from the gaming segment and a seasonal pickup in sales of branded products were tailwinds for Western Digital. Looking ahead, the company expects this momentum to continue with an increase in total exabytes shipped.

Western Digital took good advantage of this TAM growth, reporting almost 4% growth in quarterly revenue and a 29% boost in earnings, year over year. On the other hand, Seagate's market-share loss led to a 4% drop in revenue, while earnings were down 13% year over year. 

New products and a strong market
Western Digital also sees good opportunities in fast-changing information technology infrastructure as cloud computing gains steam. The company aims to add more value to its products and offer more customization levels to customers to tap the growth of this market.

In addition, Western Digital's focus on new products is also bearing fruit. Its WD My Cloud, a comprehensive cloud solution, and HelioSeal, a six-terabyte helium-based sealed drive, are attracting many customers.

Western Digital's enterprise-class solid state drives, or SSD, are also selling well. According to management, in the last quarter, Western Digital's enterprise revenue grew at a faster rate than the overall SSD enterprise market. The company has made some good moves in this department that are driving results, such as the 2013 acquisitions of Virident and sTec.

The sTec acquisition enabled Western Digital to gain hold of more than a 100 SSD-related patents, while Virident helped it strengthen its position in flash storage hardware and software. Furthermore, as Western Digital continues integrating these new acquisitions into its business, it should attract more customers to its product offerings.

In a strong position
Western Digital anticipates improvement in the global economy, while stabilization of the PC market should also help its prospects. With investments to be made across the product portfolio, Western Digital looks set to perform well going forward.

In addition, Western Digital's strong balance sheet gives it more opportunities to make acquisitions and invest in research and development. Western Digital has $4.7 billion in cash and debt of $2.3 billion. Its debt-to-equity ratio is 27. By comparison, Seagate carries debt of $3.6 billion and a weak cash position of $2.3 billion. Seagate's debt-to-equity ratio is also a sky-high 143. 

Foolish takeaway
Western Digital's superiority over Seagate places it in a strong position to benefit from growth in the storage market. The company has made smart acquisitions and is focusing on product innovation and improving its standing. Investors should use the recent tech sell-off as a buying opportunity in Western Digital.

These two are strong dividend plays, here are our top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

 

Mukesh Baghel has no position in any stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers