Barron’s Says Western Digital, Micron Look Impossibly Cheap

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Barron’s says Western Digital and Micron look “impossibly” cheap.

Eric Savitz writes in this week’s edition of Barron’s, “Historically, companies like Western Digital (WDC) and Micron Technology (MU), which make digital storage, have been lousy investments but, at a time of nearly unprecedented tech stock volatility, investors should now buy them both… Micron is one of the market’s cheapest stocks on a price/earnings basis-it trades at about five times projected profits for the next 12 months. Meanwhile, Western Digital trades for six times profits for the same period. That makes it the second-cheapest tech stock.” Source: https://www.barrons.com/articles/2-tech-stocks-that-now-look-impossibly-cheap-51652472467?mod=past_editions

We would think Mr. Savitz would know better than using the P/E metric in a rapidly contracting economy to measure a stock’s valuation. In a recession, the P/E makes stocks look cheap until it doesn’t.

Micron trades at a market cap of $81.4 billion. It did $31.7 billion in sales last year, giving it a P/S ratio of 2.61. That’s not cheap, at least not in this newly established value market of supply versus demand. Let’s throw Micron out and move on to Western Digital.

Western Digital trades at a market cap of $18.8 billion. It did $19.2 billion in sales last year, giving it a P/S ratio of 0.98. That’s not cheap, but it is fairly valued. However, Western Digital’s actual and estimated EPS has been falling over the last three quarters. Is this why institutional investors and insiders have reduced their positions over the previous three months? It explains why 11 analysts gave WDC a Strong Buy rating three months ago. Today, only seven analysts give the stock a Strong Buy rating.

Western Digital EPS data

📈 WDC Stock Chart

Earnings gap up, gap fill, set to head higher… NOT SO FAST, BARRON’S! Where’s the volume and conviction on the candle over candle bounce?

Ok, maybe it could trend higher here. I’d give it a “lukewarm” rating at best. But I wouldn’t call the stock “impossibly cheap,” especially when considering that sales have gone nowhere over the last five years.

WDC Income Statement Data 2017-2021
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