Tech’s Best-in-Class Value Stock
I love going to the beach. I find that walking along the shore where the ocean meets the land is a sublime and calming experience.
Living in Kentucky, however, I rarely get to visit the beach. So, when the opportunity arises, I like to take full advantage of it.
One such opportunity arose last year when I traveled to South Florida to meet up with my colleagues here at Banyan Hill. We had a company meeting scheduled early the day after I arrived. Despite my late arrival the night before, I was determined to get up early enough to walk the beach at low tide.
Not only was I able to watch the sun rise during a peaceful walk along the beach, the ocean’s retreat from the shoreline offered up some amazing discoveries before the beachcombers arrived.
It may sound corny, but you can treat market corrections in much the same way. When the market pulls back, it offers up some rather profitable investments … if you are able to keep your cool and not panic.
With the market still at “low tide,” you should be out combing for buying opportunities. Last week, I highlighted just such an investment with TJX Companies Inc. (NYSE: TJX) and its unique brick-and-mortar business model.
Due to a combination of retail sector pressure from Amazon and the broad market correction, TJX stock was seriously undervalued and oversold. It still is, even with the shares up about 3.5% since last Friday.
So, even though the market tide is beginning to rise again, it wouldn’t hurt to take a few minutes to go back and read last week’s article.
This week, I am running with the same theme: Beachcombing after the market correction.
Remember, the goal here is to find value, not overhyped momentum stocks or bullish sentiment darlings.
Diving Into Dividends
One of the reasons stocks have been so popular during the past decade is the lack of yield. Low interest rates have prompted investors to pour money into the markets in search of returns they once found in the bond markets and similar investments.
But interest rates and bond yields are rising, and the pressure this exerts on stock prices is unavoidable. As a result of this shift in the market, dividend-paying stocks should be high on your list for investment potential. It’s one of the big reasons why Seagate Technology (Nasdaq: STX) is among today’s bargain picks.
Specifically, Seagate currently offers up a dividend yield of about 5%. That is not only best in class among its technology sector peers, it’s also rather impressive for the market as a whole.
Currently, the company pays out a quarterly dividend of 63 cents per share, with the next payout coming sometime in May. (Seagate has yet to declare a dividend date for the current quarter.)
Furthermore, Seagate has lifted its dividend payout in each of the past six years — a sign of the company’s solid bottom line and market growth potential.
Speaking of growth potential, Seagate specializes in the one thing the internet needs the most: storage. Cloud storage and services need hard drives and disk storage just like your laptop and desktop computers … only they need more of it, much more.
Dropping the HAMR
As cloud computing and storage demand increase, Seagate benefits.
Furthermore, the company is at the cutting edge of improving digital storage options with high-capacity mass-storage products. Seagate is improving storage density with its heat-assisted magnetic recording (HAMR) technology.
HAMR not only speeds up data storage access time, it also shrinks the physical size of existing drives while increasing storage. Look for HAMR to drive Seagate revenues solidly higher in 2019.
Finally, STX stock is attractively priced right now. The shares are up more than 67% since September, even after the market correction.
STX bottomed last week at support from its 50-day moving average and is on the verge of once again taking out resistance near $52.
In short, the shares are on the verge of returning to their former highs near $57. Given the company’s solid dividend and growth prospects, I would consider STX a bargain buy between $50 and $53 given the current chop in the market. Just to be safe, consider a stop-loss on a trade below $46.
Be sure to check back next week when I take a look at another undervalued investment opportunity.
Until next time, good trading!
Assistant Managing Editor, Banyan Hill
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