TRADE INSTRUCTIONS
Date: August 24, 2017
Name: Western Digital
Symbol: WDC (NSDQ)
Type: Open
Limit: Buy below $92

TRADE TARGETS
Holding Period: 4 months
Target Return: 12.9%
Annualized Return: 38.7%
Target Price: $105
Stop Loss Level: $79

COMPANY DESCRIPTION
Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. Link to company website.

TRADE RATIONALE       
The tech trade has taken a surprising twist over the past month. Once untouchable momentum stocks like Netflix and Amazon are now being called into question (both down 10% since July 26), while low P/E companies such as Intel and Cisco have stabilized and show signs of coming back to life. This has become a nervous stock market, as seen in a spike in the VIX and reduced trading volume during the past three weeks.

Of all the low P/E tech stocks, only Western Digital (WDC) earns a perfect score of 10 from my IDEAL Stock Rating System. Priced at less than 8 times forward earnings while paying a forward dividend yield of 2.3%, it is the kind of stock that could quickly run up the charts if Congress passes corporate tax reform that encourages repatriation of cash held overseas (of its approximately $6 billion in cash, nearly 80% of it is held off shore).

And even if that doesn’t happen, WDC is moving forward with an aggressive acquisition strategy as evidenced by today’s announcement that it intends to buy Toshiba’s flash memory chip division in a deal valued at $17.4 billion. Once that deal is consummated, analysts will most likely increase future revenue projections for WDC, on top of the 38% revenue growth the company recorded in the most recent quarter.

However, WDC also booked a slight loss in the previous quarter, temporarily throwing most of its valuation metrics into disarray. But its five year PEG ratio of 0.27 suggests the stock is grossly undervalued and will need only a return to profitability this quarter to push its share price back up above $100.

 NOTE: This stock is optionable.