Motley Fool: Forecast good for Seagate Tech dividends, earnings

Data storage specialist Seagate Technology (Nasdaq: STX) can be a volatile stock, soaring when computer memory prices are high and swooning when the market is flooded with memory and prices are low. Recently, for example, with NAND memory supplies tight and hard drive prices rising, Seagate stock has surged – rising more than 80 percent during the past year.

Seagate has been going through a brutal period. Revenue fell by 19 percent from fiscal 2015 to fiscal 2016 as volumes and prices both slumped under the weight of declining demand for PCs. Momentum has been shifting for the better lately, though. Revenue ticked higher by 3 percent last quarter (over prior-year levels). CEO Steve Luczo and his executive team say they’re seeing signs the business is stabilizing. They also believe Seagate’s lower cost structure and improved portfolio of high-capacity drives should drive stable growth over the coming years.

Seagate’s stock may not seem bargain-priced with its recent price-to-earnings ratio of 17, but analysts expect strong growth, with earnings more than doubling over the coming five years. On top of that, patient investors can enjoy a hefty dividend that recently yielded 5.9 percent while they wait for long-term price appreciation. With Seagate generating more than $1 billion in free cash flow annually, the company looks poised to continue dividend payments.

Ask the Fool

Q: Does a low P/E ratio indicate that a stock is going to go up? – F.W., St. Augustine, Florida

A: Not quite. The price-to-earnings ratio is a simple fraction, dividing a stock’s current price by a year of its earnings per share. If Sisyphus Transport Corp. (ticker: UPDWN) is trading for about $60 per share and has a trailing EPS of $3, its P/E ratio is 60 divided by 3, or 20.

The number shows how much you’re paying per dollar of earnings. Thus, all other things being equal, a P/E of 15 is preferable to a P/E of 25, because you’d be paying a lower “multiple” of earnings.

A low P/E ratio doesn’t guarantee future growth. It tends to reflect a possible bargain – or a company on shaky ground. A steep P/E can reflect an overvalued stock that’s more likely to stall or decline than to keep rising.

Note, though, P/E ratios vary by industry and they rely on EPS, which can be manipulated to some degree by management. So expect low P/E ratios in capital-intensive industries such as manufacturing, and higher ones in lighter and fast-growing businesses, such as software. Only compare apples to apples. Be sure to evaluate other measures, too.

Q: Can you recommend any good books on value investing? – G.O., Adrian, Michigan

A: Try “The Little Book of Value Investing” by Christopher H. Browne (Wiley, $25), “Value Investing: From Graham to Buffett and Beyond” by Bruce Greenwald et al. (Wiley, $22) or “The Intelligent Investor” by Benjamin Graham (Collins, $23).

“One Up on Wall Street” by Peter Lynch and John Rothchild (Simon & Schuster, $17), meanwhile, offers a good introduction to investing.

My dumbest investment

I bought 1,000 shares of Apple a month before the first iPhone was released. The stock went up to approximately $178. After some time, it started going down, and I dumped it around $125. Big dummy. – N., online

The Fool responds: Ouch. We hear from many people whose biggest investing regret is selling shares of Apple. In your case, your 1,000 shares would have split into 7,000 shares in 2014 and would have been worth more than $1 million at recent prices.

Don’t kick yourself too much, though, as most longtime investors have made costly blunders – and many of those moves seemed quite reasonable at the time. After all, Apple was a disappointment for many years in the computing realm, with admired offerings but a paltry market share. There was no way to know for sure that the iPhone would be a massive hit. It was the same with other huge moneymakers for the company, such as the iPod, iPad and App Store.

Few would have guessed Apple would go on to have the highest market capitalization in the world. (Its market cap was recently $763 billion, well ahead of No. 2 – Google parent Alphabet, at $674 billion.)

As investors, we need to research and know our investments well, and hang on to them when we feel confident that they are healthy and growing. If you weren’t bullish on Apple, you were right to sell.