CEO Steve Luco's 2 million turnaround plan is already bearing fruit. Higher volume sales and cost controls has helped the disk drive maker earn at least 7% gross margins for the quarter, better than earlier estimates, according to the comany's management. Cash increased $200 million to about $1.5 billion. Product development and marketing and administrative costs are expected to be $380 million, below the originally projected $395 million.
As a result, the company expects unit shipments in the quarter of 39 million, with a total market of 110 million to 112 million units. STX's unit demand for 2.5-inch and 3.5-inch ATA drives was better than planned; the company also said it gained significant share in those areas. That said, the company now expects to post revenue for its 3rd fiscal quarter ended April 3 of 2.1 billion-- which ios ahead of its previous forecast of 1.6 billion to 2 billion.
On the other hand, the company said the market for enterprise class products fell about 20% sequentially. However, skeptics should realize that all major enterprise companies (emc, ntap, etc) have all been hit by the economy. They all have announced bad numbers, layoffs, etc,. The only thing they did the last quarter was to burn off inventory. Customers are not canceling orders, they are simply deferring their orders. Otherwise, there is a huge pentup demand for storage that will soon explode; When it does, STX will be rewarded significantly. The scenario occurring right now, is a pentup demand for capacity, not speed. Hence, customers are not clamoring for ssd's, they want capacity (hard drives).
Aside from improved fundamentals, the technical view is also bullish for STX. Shorterm, intermediate-term, and longterm views all indicate a "buy". The 5.80 is a solid support level for STX. The shares have closed above the pivatol point of 6.85-- a very healthy sign. If we can breach through the resistance of 7.80 on heavy volume, more capital will flow into the stock.
Other bullish indicators are the following:
A. 20, 50, and 100 Moving Day Average versus Price.
B. 20-50 Oscillator Band, 20-100 Oscillator Band, 50-100 Oscillator Band
C. 20, 50, and 100 MACD Oscillator
Based on the above technical and quantitative indicators, I recommend the following strategy for new entries.
Assuming the shares open at 6.88 on Monday, the May strike 6 at 1.10/contract look attractive. If you write these calls against the underlying shares, you will be granted .43/contract. That is 430 dollars per 1000 underlying shares. the May strike 7 are also offering .50/contract. But only write those calls if you feel the overall market will continue to hold its rally. Otherwise, the strike 6 might be a better hedge.
Disclosure: The author owns STX in his portfolio.
As a result, the company expects unit shipments in the quarter of 39 million, with a total market of 110 million to 112 million units. STX's unit demand for 2.5-inch and 3.5-inch ATA drives was better than planned; the company also said it gained significant share in those areas. That said, the company now expects to post revenue for its 3rd fiscal quarter ended April 3 of 2.1 billion-- which ios ahead of its previous forecast of 1.6 billion to 2 billion.
On the other hand, the company said the market for enterprise class products fell about 20% sequentially. However, skeptics should realize that all major enterprise companies (emc, ntap, etc) have all been hit by the economy. They all have announced bad numbers, layoffs, etc,. The only thing they did the last quarter was to burn off inventory. Customers are not canceling orders, they are simply deferring their orders. Otherwise, there is a huge pentup demand for storage that will soon explode; When it does, STX will be rewarded significantly. The scenario occurring right now, is a pentup demand for capacity, not speed. Hence, customers are not clamoring for ssd's, they want capacity (hard drives).
Aside from improved fundamentals, the technical view is also bullish for STX. Shorterm, intermediate-term, and longterm views all indicate a "buy". The 5.80 is a solid support level for STX. The shares have closed above the pivatol point of 6.85-- a very healthy sign. If we can breach through the resistance of 7.80 on heavy volume, more capital will flow into the stock.
Other bullish indicators are the following:
A. 20, 50, and 100 Moving Day Average versus Price.
B. 20-50 Oscillator Band, 20-100 Oscillator Band, 50-100 Oscillator Band
C. 20, 50, and 100 MACD Oscillator
Based on the above technical and quantitative indicators, I recommend the following strategy for new entries.
Assuming the shares open at 6.88 on Monday, the May strike 6 at 1.10/contract look attractive. If you write these calls against the underlying shares, you will be granted .43/contract. That is 430 dollars per 1000 underlying shares. the May strike 7 are also offering .50/contract. But only write those calls if you feel the overall market will continue to hold its rally. Otherwise, the strike 6 might be a better hedge.
Disclosure: The author owns STX in his portfolio.
About the Author:
Dr. Jack Haddad, MD, MBA has been professionally trading the stock market since 1997 and had an annualized return of 39.4%. Dr. Haddad has recently launched MD Capital Management, an Investment Fund with Charles Schwab. The fund utilizes option hedging techniques to generate returns while minimizing risks. For more info, visit Jack's online group: MD Capital Management.
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