Amvona

Is Western Digital an Ideal Acquisition Target?

*May The Lord rest the souls of those who have departed in the destruction caused by Hurricane Sandy, and console their loved ones.

MBAsOn October 22nd, 2012 Western Digital Corp. released their Q1 2013 financial results.  Here are a few key points that are worth noting:

Valuation Ratios:  The cheapest Company in America?

"Citigroup‘s Joe Yoo today cut his ratings on hard drive and storage technology developers Seagate Technology (STX) and Western Digital (WDC) to Sell from Buy, writing that there is a chance of 25% downside to current estimates for the companies this quarter given what may be drastically lower volume of drive shipments.  Yoo cut his Seagate target to $25 from $37, and cut his Western Digital target to $32 from $53. …For Western, his estimates go to $15.3 billion and $9.99 in EPS from a prior $15.84 billion and $10.68 per share."

STX, WDC Cut to Sell at Citi; Estimates Too High Amidst PC Slowdown (Tech Trader Daily, Oct. 12th, 2012)

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Another look at the Low Cost Building Blocks of Storage

Shares of Western Digital (WDC) were sold for investors accounts on August 13th, 2012 at $44.  As of close of market on Friday Oct. 19th, the shares were being traded for a mere 34.88.  A decline of a full $9.12 or almost 21% in barely 9 weeks.  Is the value of the company really less than it was, when the shares recently traded at $44?

 

wdc chart 10-22-2012

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Buying glass and other problems with interventions

intervention - royal tenenbaumsOn April 25th, 2012 Amvona published the article "Corning from another perspective”.  On May 2nd shares of Corning (GLW) were sold for investors accounts at $14.49 per share - a return of about ~13% in just over 4 months, or almost 38% annualized.  The shares were not sold because it was thought that they were overvalued, rather it was to free up capital for the growing position in Western Digital (WDC) later discussed in the follow up article "Update: Western Digital Discusses Q4 2012 Results”.

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Update: Western Digital Discusses Q4 2012 Results

On July 25th, 2012 Western Digital Corp. (WDC) announced their FY2012 results - and beat consensus EPS estimates of $2.47.  In after hours trading on July 24th as well as today, the shares moved up slightly, so it seemed like a good time to take a look back at some of the Amvona analysis of the company.

 

chart

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On the value of Users, Hard Drives and Batteries

Spencer Platt/Getty ImagesOn May 17th around 2 p.m. a call came in from a friend, he said he had just received a call from his broker, who asked him “what he wanted to do about Facebook’s IPO”.    The response was intricate and subtle;

“wouldn't touch it with a hundred foot pole”

The advice was to consider buying Western Digital (WDC) instead if he had to buy something.    Sensing that the answer may have been a bit curt, the following email was sent shortly after the phone call:

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Silver Platters, Annie Oakley and “The Sidelines”

on the sidelines 2According to a research report published last Friday, Bank of America has downgraded Western Digital from Buy to Neutral, and lowered their target from $54 to $46. In the report, Bank of America said:

"WD reported significantly better than expected F3Q12 EPS at $2.52 vs. our/Street $1.60/1.55, driven by revenue and margin. WD guidance was disappointing (EPS of $2.35-2.55 vs. our/Street prior $2.67/2.30) and commentary pointed to softer demand than expected going forward, at current/elevated ASPs levels, and some pricing concessions (certain HGST customers, pre-acquisition). It appears the HDD industry can't have it both ways for much longer – pricing/margins at high levels, and expected strong demand, with assumed channel inventory refill. We step to the sidelines for now, despite attractive valuation."

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Corning from another perspective

fiber_optic_cableOn December 19th, 2011 we began purchasing shares of Corning Inc. for investor accounts – these purchases were made at an average price of $12.73 per share.  Unfortunately we didn't have time to write an article explaining all of the reasons why we felt Corning represented a good value for investors, we did however mention the purchases in our February 1st, 2012 article The Prime Ministers "One Dollar" bets  when we published  our correspondence saying:

 

“haven’t always been able to publish all ideas (but always execute for friends and family) – for e.g. haven’t had time to write an article on it yet, but have also been buying GLW (mostly below 13).”

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Did Seagate just tip Western Digital's hand?

DSM_IV_2Probably because of some yet-to-be-diagnosed neurosis our idea of a “good time” is listening to replays of company conference calls - the company’s that we own for investor accounts are a lot of fun, but our real interest is their competitors.

Recently when listening to the Q3 2012 CC for Seagate Technologies (at about 9 min and 35 sec. into the call), we stumbled across an interesting piece of information - Seagate indicated that the TAM (Total Addressable Market) in the March QTR was about 143 M units, which was above both the industry analyst and the company’s own expectations of 130-135 M units, mentioned by the company in their January CC. 
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Wait! That was our price target and other musings on Memory and storage

price_targetWe were waiting for at least a 7% price jump when we published our article Hard Drives, Floods, Monasteries and Investment Returns on Dec. 2nd , 2011 – good thing we weren’t holding our breath.  We thought the article looked pretty smart, not only because the WDC investment had already returned 30.2% to investors by the time we were able to publish, but also because we had this really crazy $67 dollar price target on the stock (way higher than any other analyst at the time) – we thought people would listen.
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Update: How we made investors Money on Cisco

 
lemmings
 
On February 12th, 2011 we published our first article on Cisco Systems entitled "How we lost investors money on Cisco". The title was intended to be a pun for the readers (we weren't selling at a loss), as we quickly pointed out in the article..."We have no intentions of selling; on Monday we'll be buying for their accounts." The stock closed at $18.70 the day before the article was published.

We went on to make impressive sounding arguments about sociology like this artifice:

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The Prime Ministers "One Dollar" bets

one_dollarThe following is a copy of email correspondence we recently had with a friend and in the same spirit as our post "Correspondence with a friend on Investing".

Help was offered after learning of tremendous losses he had suffered in a bad investment.  We decided to publish the correspondence because it reflects the usual questions and fears often heard from investors as well as the answers provided - and because we think it's more efficient to provide representative correspondence once than continue to provide the same answers on an ongoing basis.

Persons names, the origin of the prime minister and various  and sundry details referenced have been either changed or omitted in order to protect their privacy - despite this, we still could not publish all of the related correspondence without revealing identities.

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American Greetings Corp. and the Triple “W”

stock_certificatesOn December 22nd, 2011 we began purchasing shares of American Greetings Corp. at $12.91 per share for investors.  To our surprise we were able to get several more large blocks of the shares in extended hours trade yesterday evening (Jan. 4th, 2012) for the same accounts.
 
We’re thrilled that as of the writing of this article, the price has actually gone down even further (explained below).  
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Hard Drives, Floods, Monasteries and Investment Returns

Halki
 
The bones of an article
 
On November 16th, 2011 there just wasn’t enough time to do everything – something had to give.  We were packing our bags for our trip to Istanbul, we had to be at the airport by 6:30 p.m., we were making last minute preparations, scribbling out notes for an article on Western Digital and stuffing investors accounts with their shares as fast as we could.  After listening to their Q1 2012 CC call twice [and then STX’s] and having read all of their 10Q’sand annual reports for over a year we were more convinced now than ever that WDC had by far the superior management team, and with a confirmation of full insurance coverage including business continuity (that is to say lost income) after the floods in Thailand, there was no doubt left in what we were doing with investors money.
 
 
Although we only needed the typical hour to knock off the article, it just wasn’t in the cards.   By 2:30 p.m., amidst a flurry of phone calls and emails, we gave up on the idea that the article could be published that day, having scribbled out only the framework of an article.
 
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Why we’re still buying Skechers stock

gorun_3On December 22nd, 2010 we published our article “SKX and the markets strange reaction to Sterne Agee”.

In summary we indicated that readers should buy shares of SKX at $16.   At the close of market Friday November 25th, 2011, the shares could be acquired for a mere $12.18 – a decline of some 23.9%.

We were wrong on how the market would price the shares.  However, we do not believe we were wrong regarding the value of the company, despite the markets pricing – so we purchased more shares for investors between $11.86 - $12.77 per share.
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Update: General Dynamics Acquires Force Protection

arrogance_2We were going to title this article “We’re so smart”, but we thought that there was at least a small possibility that readers would fail to appreciate the depth of our humility if we did that, so we went with the second most obvious title we could think of.  Besides after SeekingAlpha’s editors picked up our article “Houston, we've got a problem - Bevilacqua” a few weeks ago and exposed it to their 50 million visitors a month by featuring it on “Market Currents”, then selecting it as an “editors pick” once we did finally submit it to on our own, we began to think that our humility may actually not be as secure as we once thought.  

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