Disk drive stocks down and due to stay there
There will be a turnaround, say analysts, but they just don't know when it will come, or how big a turnaround it will be. Wishful thinking like that gave disk-drive stocks a boost in February and then again in early May but the message now is "Don't fall for the ‘worst is over' mantra."
Disk drive stocks took a hammering on Wednesday and will probably fall further as soon as another profit warning comes along. So far in this profit warning season, Western Digital and suppliers such as Read-Rite and Komag have told Wall Street to expect hefty losses.
The story has been the same for the last year: an inventory glut slashed prices and erased hopes for easy profits. But before the barrage of profit warnings on Tuesday and Wednesday, Wall Street was ready to fall in love with hard-drive makers again. Salomon Smith Barney boosted shares of Seagate on Tuesday with a high-risk ‘buy' rating, up from a neutral.
Seagate is high risk, but along with Quantum has the best shot to survive. Quantum and Seagate both have products such as tape drives that act as a cushion against market woes. But even Quantum and Seagate are seriously limping. It can't get much worse for hard-drive stocks, but it won't get better.
Here's why investors may want avoid these stocks for now: