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I was right about prospects of hard disk makers and our current unrealised gain is over 100%, but I would have done much better if I had bought Seagate instead. The difference in performance can be largerly explained by flooding in Thailand in October 2011 that severely impacted WDC and benefited STX. The chart below gives you idea of their relative performance in the last three years (WDC stock price divided by STX stock price):
Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.
Reproduced with permission under "Limited Licence" / General Terms of Service.
Lately (over last year) WDC has outperformed STX. Longer term, I would not be surprised if this trend continues. Therefore, I continue to hold WDC instead of STX. However, something to consider is to own both companies instead one or the other. That would also protect from one time events that have material impact to either company.
Comparing valuation and financials of WDC and STX there isn't many material differences. The market cap, for example, is currently almost the same. The most notable differences are:
- P/B: WDC 1,9 vs. STX 4,1
- Dividend yield: WDC 1,6% vs. STX 3,9%
- Long term debt / Equity: WDC 0,22 vs. STX 0,79
There currently appears to be significant difference in current P/E, ROA, ROI, ROE, but I believe those are not lasting differences.
- WDC recorded $681 arbitration charge in their Q4/2013 impacting their net profit. The award was from WDC vs. STX dispute so this seriously distorts TTM figures.
- The companies operate in exact same industry with significant market share. Their gross margins and operating margins are very close. I can't see currently any reason why net margin (profit margin) could be materially different for the two companies.
Full disclosure: Long WDC at the time of writing.
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