Seagate Bumps Western Digital on Longbow List

Seagate Bumps Western Digital on Longbow List

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Seagate Technology closed yesterday up 5% after Longbow Research added the data storage specialist to its "Best Ideas List," displacing Western Digital in the process.

So what: Along with the addition, analyst Joe Wittine planted a price target of $54 per share on Seagate, representing about 25% worth of upside to where it sits now. Wittine's belief that the hard drive industry bottomed in the first half of 2013 naturally bodes well for Western Digital, too, but Seagate gets the spot on the list due to its organic investments (hybrids, enterprise and client SSDs, and services) and attractive valuation.

Now what: Longbow thinks the sector has several trends working in its favor. "The PC-related risk has faded in importance for the HDD stocks, since non-PC HDD sales are now eclipsing PC HDD sales led by double-digit unit growth for enterprise and branded drives," wrote Wittine in a note to clients. "[S]upply/demand fundamentals are attractive with the industry fully consolidated, allowing Seagate and [Western Digital] to defend industry gross margin at 27-32% and allow any future capacity additions to lag demand." Given that bothSeagate and Western Digital trade at forward P/E ratios in the single digits, purchasing the pair might even be the prudent way to play those trends.

Editor's note: A previous version of this article had an incorrect price target on Seagate Technology stock. The Fool regrets the error.

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Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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