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." Here, we'll show you whether those bigwigs know what they're talking about. With help from Motley Fool CAPS, we track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
Shares of hard drive maker Western Digital (NYSE: WDC) got a boost on Friday, as Barclays Capital raised its target price on the stock by 7%. The firm already had an "overweight" rating on the stock. Other analysts also made positive moves on Western Digital that day, including a fresh "buy" call from Craig-Hallum, a 12% target boost from Caris & Co, and generally glowing reviews by Stifel Nicolaus and Needham.
In all cases, the upgrades rested on a reborn dividend from Western Digital's largest rival, Seagate Technology (Nasdaq: STX). Breathing new life into a deceased dividend policy signals great confidence in the pricing environment for hard drives, and shows resilience in the industry after the earthquake and tsunami disrupting operations in Japan. In fact, Barclays thinks that the calamitous event may have boosted the storage industry in general, since customers might stockpile drives in anticipation of coming shortages.
The nudge from Caris is particularly interesting, because that firm has a pretty firm grasp on the computing sector, including these winning picks:
|
Company |
Caris Rating |
CAPS Rating (out of 5) |
Caris' Rating Beating S&P By |
|---|---|---|---|
| Apple (Nasdaq: AAPL) | Outperform | *** | 280% |
| EMC (NYSE: EMC) | Outperform | ***** | 128% |
| Hutchison Technology (Nasdaq: HTCH) | Underperform | *** | 80% |
In this space, Caris carries a nigh-on unbeatable accuracy rating of 90%, with at least four big winners and only one losing pick. The firm jumped on the EMC and Apple bandwagons way back in 2006, when neither stock was an obvious market darling, and it's an overall all-star stock picker across all sectors.
In other words, when Caris makes a call on technology stocks, it doesn't hurt to prick up your ears a bit.
Foolish final thought
The storage market is packed to the gills with perennially undervalued performers. Much of the skepticism seems to come from investors keeping a hungry eye on memory-based storage technologies. That makes solid-state storage specialists OCZ Technology Group (Nasdaq: OCZ) and STEC (Nasdaq: STEC) shockingly expensive in relation to the depressed valuations of Western Digital or Seagate.
But I agree with Barclays, Caris, and the other hard drive bulls that there should be good times ahead for the traditional storage industry. Solid-state may eventually kill magnetic disk drives, but the cost difference is still large enough to keep hard drive demand strong for years to come. As memory chips get cheaper, Western Digital and its cohorts will also continue to drive down their cost structures, and thus preserve their remaining advantage. The fallout from the quake should provide another short-term boost to the entire industry.
Seagate and Western Digital are deeply entrenched leaders in this sector, and both are very well-positioned for the short-to-mid-term future. That's my take, and these days, a horde of Street analysts agrees.
