Obviously there is not crystal ball that tells you where stocks will go, nonetheless, just like any investment, you do your research, you analysis (unless you are simply day trading), you get a feel for the market, the industry environment, and then you put you cash on the line.
Personally, I think the hard drive companies are a bit bottomed out. They got the crap, flat-out, kicked out of them. They got hit harder than any industry, for an extended period of time, than I can think of. Perhaps the networks last Februaru or so(i think it was feb-ish?) I mean first SEG tanks, then wdc, then rdrt...I mean, how ugly was Monday,, after the drives bounced on Friday, WDC was near 25, etc. to come in monday and see segate prerelease and RDRT take a charge, then qntm take a charge on Thurs and Friday and close a plant.
Nonetheless, unlike many of the networkers, outside of cisco, just about each of the hard drive companies has big, big revenues base, excellent balance sheets and lots of cash on those sheets.
Without a doubt there is some consolidation, overcapacity and price pressures that need to be resolved. Nonetheless, these are top companies that therefore have top management and this kind of management has experience to guide it through this troubled period.
The bad news is out...holders of the company now, in my opinion, know the news, are willing to accept, know the strength of the sector and need for hard drives and are confident that management can reduce capacity. Re; reducing capacity, I think this i why QNTM rallied friday morning on the new they were shutting down the plant. Normally news like that would hammer a stock, down 1/2 or 3/4 which is where most of the hard drives ended up, is ok, not great, but appeared to be more a reflection of the tech market (dell, intc, gtw) etc. rather than just the hard drive...after all, they are all tied together to an extent.
Holders of the stock now have stronger hands. Somewhere in here we will get through the selling related to this latest "wave" of earnings issues. Of course, new news and more disappointments rescape the landscape but they seem to be stabilizing. Wall street climbs a wall of worry and sells at the top.
Anyway, don't whitewash the hard drives either, they have some serious issues and problems, maily the prices and margins they are realizing. Good companies will reduce costs and overhead which should buoy margins and help sustain profits. Then, when pricing pressures ease, this should amplify the return of earnings. Sometimes, tight periods swab the decks and clean house which is need. Obviously this was need since these companies spun themselves a bit too much.
Anyway, looks like SEG will break even and WDC will make a little money, 20 or 30 cents. As well, I think WDC does more contracting of components which will help them reduce costs in down turn. They just submit fewer orders whereas seagate produces a lot themselves and will have employees and facilities turning down.
Nonetheless, these are high caliber companies that are simply out of favor, flat out disliked...nonetheless, someone likes them since they are trading relatively big volume and hanging in there. When things resolve themselves and pricing pressures start to turn and big profits come back, if at all, the stocks won't be at 20...in fact, a good investor would probably be near their selling point...buy them when they are low, sell when they are high....bad news...low...good news high....they key in a contrarian, bottom up approach to this is picking quality companies, not crap.
Some of these tech startups fit the "crap"bill, with no revenues, no management and no chance of recovering unless they find the "cure". I think SEG, WDC, QNTM, APM, RDRT, regardless of which you own, are reasonably good companies.
Good luck
steve@yamner.com |
