“Contrarian Bonanza … the company just raised its revenue targets by nearly 80%. Wall Street barely noticed.”

by Travis Johnson, Stock Gumshoe | January 16, 2012 3:24 pm

Yet another "contrarian" pick teased by the Million-Dollar Contrarian Portfolio

It’s a long list of teasers that tempts us into the Weiss fold, enticing us to subscribe to his real-money Million-Dollar Contrarian Portfolio.

Tempted to subscribe? No, not the mighty Gumshoe! Tempted to sniff out the answers for free? You bet!

The first teaser picks from this ad inspired a bit of debate (though, to be frank, more debate about past Weiss performance than about the actual picks) … so let’s see if we can identify another, shall we? The prior articles should be off to the right side of this piece, so you can click on those if you want to read them in order.

Here’s the tease:

“Investors stampeded away from this company’s stock last year when massive flooding in Thailand threatened its manufacturing plants there.

“But now, the company has recovered nicely. Plus, it has huge long-term contracts in place with the world’s largest computer makers.

“And get this: With little fanfare, the company just raised its revenue targets by nearly 80%. Wall Street barely noticed.

“Oh — and did I mention? … The company has $3.5 billion in cash!

“And if all this isn’t exciting enough, the company is a leader in a new technology that most computer experts believe will completely replace the disc drives in new computers.

“We’ll have to move quickly on this stock; the crowd is already beginning to see the error of its ways. It gapped higher in mid-December.

“But there’s still plenty of room for profits: Just to catch up to its peers, this stock would have to soar 170% from today’s levels — nearly a TRIPLE!”

This one, says the all-powerful Thinkolator, is Western Digital (WDC)

And yes, they did raise their revenue forecast –recovering much mroe quickly than they had previously said from the pain of those Thai floods that wiped out so many disk drive and semiconductor facilities. Here’s a quick piece about that forecast hike[1].

[2]

Hard disk drives have been called a “dying industry” for a few years now, though they still sell a hell of a lot of ’em, and it’s a rare laptop or desktop that doesn’t include an (increasingly capable and higher-tech) hard disk — flash memory is certainly the wave of the future if you ask any of the experts, but it’s still very expensive, by comparison, and hard to scale up for huge memory demands.

And of course, Western Digital and Seagate, the two main “pure play” competitors in hard drive manufacturing, are also trying to innovate to keep their business on the cutting edge — developing new memory solutions, newer, higher-tech drives, etc.

But yes, they’re certainly priced like an industry in decline — and of the two, Western Digital is certainly the more attractive if you look just at the balance sheet (STX carries a bit of debt, WDC has a huge chunk of net cash), so perhaps that’s why WDC is trading at the “pricier” 6 times next year’s earnings while STX trades at a forward PE of 4.

Will they make you rich? Well, Wall Street doesn’t think so — but with WDC trading at less than 1.5 times book value and at a truly puny forward earnings multiple you’re at least not paying a premium price for the company. If the hard drive business is in secular decline and destined to disappear, do you think it will take 20 years and give you a chance to profit nicely from one of its leaders trading at a value price? Or will hard drives be effectively gone in five years and are you just buying a declining asset that wastes away even as it generates some free cash flow as the revenues wither?

Or, I suppose, there’s Option C: is WDC a great business that can evolve through the expected decline of their lead product — it’s not necessarily easy to evolve, but it does happen on occasion … but it’s your money: your choice.

Have an urge to comment on Western Digital or the hard disk drive and memory storage industry? If so, I bet you know more than I do … so have at it, just use that friendly little comment box below.


Endnotes:
  1. Here’s a quick piece about that forecast hike: http://www.bloomberg.com/news/2011-12-02/western-digital-gains-after-raising-quarterly-revenue-forecast.html%20
  2. [Image]: http://personalcapital.go2cloud.org/SHGG

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  1. Jose Matias
    Jan 16 2012, 04:39:51 pm

    PLEASE FIND OUT COMPANIES BEING TEASED IN ALTERNATIVE ENERGY SPECULATOR – nO EXPIRY LITHIUM BATTERY CO., NIGHTIME SOLAR CO., RARE MINERALS CO. IN ALBERTA, B.C., CANADA, ETC. PRICE OF REPORT IS $139 PER QTR. THANKS

  2. David B.
    Jan 16 2012, 05:01:50 pm

    WDC would do better if it shared the loot, but nada on a dividend. STX carries a 3.7% dividend at the present time and is a better bet.

  3. john sloan
    Jan 16 2012, 08:26:38 pm

    HI Travis
    great work as always
    I have subscribed to “Safe Money Report’ since 2005 and I think Weiss has been right in his view of the macro-economic picture. He added all these other guys much later – frankly their ideas simply do not track with what is written in Safe Money Report – Also, I like it for the broad economic analysis of the housing and financial markets and all. I have never bought any of the individual recommendations – Stock picking and macro economic analysis are two very different fields.
    The same goes for the AGORA gang – Read Bonner years ago – good macro analysis – he continues to write a rather non-committal piece – but the individual pics by the many specialists at AGORA are dubious at best and they simply do not track what Bonner says is the big picture. Now I did buy a few of the Outstanding Investment recommendations – gold mines and a few energy outfits back in 2006 – but the OI pickers always say buy and buy and not sell at any point – result I lost money on several gold mines in 2009 even while gold was continuing to rise. Bonner picked gold itself as the buy of the decade in 2000 and it was – but for 2010 he switched to Japan and is not recommending gold now – but his minions still do.
    best
    john sloan

  4. FXTR
    FXTR
    Jan 17 2012, 03:26:35 am

    Does anyone knows the story behind: “Critical Alerts For Disney, Sina, WellPoint, Western Digital, and Atmel Released By Seven Summits Research” posted on the 9th earlier this month?

  5. Peter Palframan
    Jan 17 2012, 02:32:28 pm

    I know it’s probably unfair to generalize but my experience with Weiss is that they are unbelievably bad – in their macro analysis and individual picks. I was an original investor in their Million Dollar Contrarian Fund and lost about $20.0. Their doom and gloom macro analysis has been shockingly incorrect – and that feeds in to many of their specific reccos based on things like “30% Stock Market Collapse Imminent” on 12/9/11. I’ve found you’re more likely to make money by doing the opposite of their recommendations!

  6. Edward K. Motley
    Jan 19 2017, 03:00:12 pm

    Impressively, WDC did in fact rise from a $35-45 range at this publish date in January 2012 to well over $100 in 2014, but then it gave back those amounts, returning to its starting $35-45 range in early-2016.

    It is trading in the $70-75 range today though.

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