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Technology Stocks : Seagate Technology -- Ignore unavailable to you. Want to Upgrade?

To: grogger who wrote (6208)	11/4/1998 1:21:00 PM
From: William Epstein	Read Replies (1) \| Respond to of 7841

Rob Grogg; Thank you. DJBINO mentioned Gruntel in an earlier post. I respect their analyst. PHOTOMAN/William Epstein

To: grogger who wrote (6208)	11/4/1998 2:32:00 PM
From: Robert Douglas	Read Replies (5) \| Respond to of 7841

Thread, Let me try and balance the large number of comments from “chartists” with a little bit of good ole fashioned valuation analysis. In my opinion the move we have seen in Seagate is nothing more than a normal rebound from fire-sale levels. At $29 this stock has not even reached levels of valuation that I would characterize as middle-of-the-road. It's not even up to the price that I normally value plain vanilla companies, something I call 5-20 companies. A 5-20 company earns a 5% after-tax return on sales and is given a 20 P/E multiple by the market. In today's environment a 20 multiple is below the market average and a 5% ROS is below the average of all American companies. A 5-20 company is by definition selling at one times sales (.05 X 20 )and a number of value players use this level as a benchmark in searching for under-valued companies. Putting this valuation on Seagate's drive business of 6.8 billion (trailing twelve months revenues) gives it a value of $28 a share. This however is only the beginning of the story. Seagate has working capital in excess of long-term debt of $6 a share and other businesses valued anywhere between $7 and $12 a share (Veritas + IMG + Dragon + a few others). By this analysis SEG's shares have a conservative value of $41/share. But what if Seagate can achieve a return in excess of 5%, something it did for the 5 fiscal years preceding the 1998 debacle? And what if growth bounces back from the inventory cleansing, average selling price-slashing year of 1998? Is it too far out of the question that SEG could receive a valuation that exceeds a paltry one times sales? I think it is very likely. Some of course will argue, perhaps rightfully, that Seagate is not an average company but a below average one due to the guerilla-warfare type competition in the HDD industry. I will argue the opposite view that Seagate is one of the top players in an industry that will in the future put the gloves back on and refrain from bare-knuckle brawls. This I believe will be the payoff from the suffering of the last year. I originally invested in Seagate the last time the industry went through a blood-letting of this type back in 1990-91. I felt back then that competition would lessen and for several years I thought I was a pretty bright guy. I still own those shares I bought under $5 and plan on keeping them until I feel smart again. There must certainly be industry consolidation. It will come. There must be capacity scrapped. It will happen. But these things don't happen overnight and may take several years. Fortunately this is a innovative industry where old technologies naturally get scrapped anyway and, fortunately as well, there is still unit growth to fill excess capacity. Am I selling my shares at $29 just because it is up from $16? No way. Will I sell them at $40? Nope. I am a long-term investor here, something John Maynard Keynes had a few words of warning for those who wanted to try it. “He who attempts it (long-term investment) must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave…worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” -Robert