Value Search: Dirt Cheap Tech Stocks (STX, WDC, KLIC, HPQ, DELL, SNDK, MU, CSC, MSFT, INTC)

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Looking for companies that are “cheap” is often a tricky situation when you just run the numbers.  Cheap stocks are usually cheap for a reason, and that reason is either because fears have allowed shares to be sold off massively or because the growth of yesterday is not at all the growth of tomorrow… or worse.  Still, when you get companies that trade under 10-times believable forward earnings expectations and which have low multiples of sales and even a low implied book value, this is where value investors tend to focus.  Whether a turnaround comes or not might not even matter if stocks get “cheap enough” for the value investors.

We reviewed hundreds of companies in screens and wanted to come up with a list of “Cheap Technology Stocks” that value investors can look at for the long-term.  First off, finding cheap technology stocks is not easy.  In storage, both Seagate Technology plc (NASDAQ: STX) and Western Digital Corporation (NYSE: WDC) made the grade.  Some others were Kulicke & Soffa Industries Inc. (NASDAQ: KLIC), Hewlett-Packard Company (NYSE: HPQ), Dell Inc. (NASDAQ: DELL), SanDisk Corp. (NASDAQ: SNDK), Micron Technology Inc. (NYSE: MU), and Computer Sciences Corporation (NYSE: CSC)

Giant runner-ups that did not quite make it were Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC), although if there shares fell a few percent and if the business does not look as choppy then they would be on the list.

STORAGE, ENDLESS STORAGE

The disk drive and external storage market is a crowded market, and the cost of a terabyte of external storage keeps getting cheaper and cheaper.  1 terabyte of external storage can now be had for under $100.00, something which might have seemed unfathomable even a few years ago.  The good news is that as government and corporate storage needs are nearly endless through time, Joe Public also has an infinite and insatiable demand for more and more storage space as the world moves to nearly-disposable computing devices and as media storage never stops growing.  This leaves both Seagate Technology plc (NASDAQ: STX) and Western Digital Corporation (NYSE: WDC).  Both Western Digital and Seagate trade at ridiculously low P/E ratios and the competition from Hitachi, Toshiba, Iomega, and even from external storage on the cloud are why these valuations remain so low here.

At $28.10, Western Digital trades at about 7.85-times June-2011 estimates and trades at almost 6.8-times expected June-2012 estimates.  Its 52-week trading range is $23.06 to $47.44 and its market cap is just over $6.5 billion.  The most recent July balance sheet showed over $2.7 billion in cash, its shareholder equity was listed as $4.7 billion, and its tangible net assets were $4.475 billion.  The company also carries very little debt.  Thomson Reuters has a consensus price target as $34.48 for Western Digital, representing implied upside of about 20%. Western has also had much to thank from Apple, as it is usually the most featured external storage drive product in the Apple stores.

At $11.93, Seagate trades at 5.8-times June-2011 estimates and trades at 5.1-times expected June-2012 estimates.  Its 52-week trading range is $9.84 to $21.58 and its market cap is just over $5.6 billion.  The most recent July balance sheet showed over $2.37 billion in cash, its shareholder equity was listed as $2.7 billion, and its tangible net assets were $2.68 billion.  Unlike Western Digital, Seagate carries more than $2.5 billion in long-term debt and ‘other’ liabilities.  Seagate also talked to its former private equity parent about going private again according to reports, although that yielded nothing.  Thomson Reuters has a consensus price target as $16.93 for the stock, representing implied upside of about 42%.

Analysts have a higher upside to the Seagate price target objective, but of the two it is Western Digital which has the cleaner balance sheet. Neither are likely to go private but shareholders are paying very low multiples as storage makers try to find equilibrium in pricing their devices while trying to maintain margins.

SEMICONDUCTOR CAP-EX

Kulicke & Soffa Industries Inc. (NASDAQ: KLIC) has become a value investor’s flag in the cap-ex sector of semiconductors.  The company has recently named a new CEO (from Lattice) and it has also announced that it is moving its headquarters to Singapore.  With the exception of the crash in 2008 and 2009, this has spent most of the last 5-years in a trading band of $5 to $10 and the 52-week range is $4.03 to $9.58.  At $6.29. the stock has very low multiples and only a $445.8 million market cap.  It trades at a discount to revenues and consensus earnings estimates in FY SEPT-2010 and FY SEPT-2011 are $1.95 EPS and $1.75 EPS (respectively).  Oppenheimer recently downgraded this one in September to Underperform from Perform in a sector call, and the analyst there lowered FY Sept-2010 estimates to $2.04 EPS from $2.05 and cut FY SEPT-2011 to $1.33 EPS from $1.70.  These figures are well under consensus from the $1.75 EPS for FY SEPT-2011 estimates, but even at the lower rate Kulicke & Soffa trades at less than 5-times forward earnings. Thomson Reuters has a consensus price target as $8.84 for the stock, representing implied upside of about 40%.