Winning Stock Forecast: Western Digital Rises 24% in 7 Days

(Source: Wikimedia Commons)

Western Digital Turns Potential Disaster Into Stock Price Victory

Western Digital Corporation (WDC) rose 24% over the 7-day period from June 23rd to July 1st to close out Monday at $49.65. The rise could have grown even greater as WDC started the trading day at $50.41. The giant leap is WDC’s best weekly performance in the public market since July of 2012. The San Jose, California-based company conducts its work in a business-to-business (B2B) manner by developing, manufacturing, and selling data storage and data center devices and solutions. Founded in 1970, their product mix starts with client devices, such as hard disk drives (HDDs) and solid state drives (SSDs), which are used for desktop and laptop PCS, gaming consoles, as well as security surveillance systems. WDC also produces data center devices and solutions, such as HDDs, used primarily by enterprises to increase the efficiency and capacity of physical data centers and online data software. Finally, the technology company sells client solutions, such as HDDs and SDDs that are used as additional storage products and applied to mobile and desktop devices to improve wireless streaming, image and camera systems, and to backup curated content, among others.

Two main factors played a role in WDC’s sudden rise: optimism surrounding the memory chip industry as a whole and a power outage at one of Western Digital’s facilities that ended up being a positive for the company’s stock price. 

First, data storage and chip-related companies received a big boost last week after Micron Technology (MU) released its Q3 ‘19 earnings report. Specifically, MU mentioned that they were cutting capital expenditures on chip production to improve an inventory glut of memory chips throughout the industry. The memory chip industry has seen global chip sales decline the past two quarters along with an expected 12.1% decline for 2019. The decline in chip sales comes after the first half of 2018 saw the data storage industry experience astronomical demand. Memory chip customers retrieved massive chip inventories despite rising prices due to many enterprises fearing memory storage devices would be hard to locate and even more expensive as the holidays drew near. Unfortunately for both sides, the uptick in demand led to an excessive inventory glut, resulting in continuously falling memory chip prices and sales in the year since then.
Relating to MU’s strategy to alleviate the industry-wide inventory surplus, WDC recently announced that, on June 15th, a sudden power outage occurred in one of their main production factories in Japan. The facility is run by WDC’s joint venture partner, Toshiba Memory Corporation. The outage primarily affects NAND chips, which are smaller memory chips used in USB drives and digital cameras, and could eliminate up to 40% of WDC’s quarterly output of the chip. Western Digital saw this potential disaster as an opportunity to improve their margins, as their press release appeared to be “aimed at customers – perhaps in part with a hope of improving pricing – as much as investors,” according to Morgan Stanley analyst Joseph Moore. Regardless of who the Thursday announcement was aimed at, investors seemed to be thrilled as WDC’s share price gained 6.7% Friday. While investors realize the temporary production stoppage will not reverse an over year-long decline in NAND prices, they are hoping it will reduce the market’s excess inventory, which has severely suppressed prices and created a buyer’s market.

(Data source: Statista)

The upward movement of the stock immediately followed I Know First’s issuance of a 7-day forecast for WDC, on June 23rd, with a bullish signal of 1.77 and a predictability indicator of 0.33. Indeed, WDC gained an incredible 24.00% in the corresponding time range. The forecast referenced in this article was issued as part of the Tech Stocks package.

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