We recently compiled a list of the 7 dirt cheap stocks to invest in now. In this article, we are going to take a look at where Western Digital Corp. (NASDAQ:WDC) stands against the other the Dirt cheap stocks to invest in now.
The stock market is at a turning point after one of the longest bull runs in recent history. With major market indices close to all-time highs, valuations are getting out of hand. Likewise, the earnings season has seen increased volatility, though, with some significant selling of semiconductor and artificial intelligence stocks that used to draw investors.
Soaring geopolitical tensions in the Middle East are complicating the situation and triggering risk aversions in the market. Investors are becoming increasingly cautious and resorting to safe-haven assets due to concerns about a full-blown war in the Middle East that could seriously impact the global economy.
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Growing geopolitical tensions have been a factor in the stock market’s erratic start to October. According to Barbara Doran, founder of BD8 Capital Partners, things getting out of hand in the Middle East could cause stocks to decline.
Surveys of public opinion already indicate that jitters are rising in the market. A gauge of consumer confidence saw its most significant one-month drop in over three years last week. Furthermore, the National Federation of Independent Business reports that a recent survey of confidence among small-business owners dropped more than anticipated in early September, maintaining the gauge below its 50-year average for 32 straight months.
“We’re in a Goldilocks moment for the U.S. economy,” said Rich Nuzum, chief investment strategist at Mercer. “But Goldilocks moments are rare, and they tend not to last long. So when does something go bump in the night?”
Bargain Hunting in an Overvalued Market
While the market is priced at a premium due to the artificial intelligence frenzy, it does not mean there are no bargains. There are dozens of dirt cheap stocks to invest in now that are trading at discounted valuations depicted by low price-to-earnings multiple and solid underlying fundamentals.
Interest rate reduction was expected to benefit small-cap stocks. That isn’t happening. The Federal Reserve’s dramatic interest rate cut two weeks ago has caused the small-cap-focused Russell 2000 index to fall by 0.5%, lagging behind the S&P 500’s 1.3% gain.
According to Bank of America, investors should be aware of a few important US stocks while navigating the current market climate. In a note to clients, strategist Nigel Tupper stated that a combination of improving global earnings cycle, easier monetary policy in the US as inflation returns to the target level, and China’s recent multifaceted stimulus appears supportive of equity markets and cyclicals.
It is important to note that not all investments will yield significant returns, considering valuations have gotten out of hand with the S&P 500 at an all-time high. Nevertheless, long-term investors can make substantial gains by selecting solid growth stocks trading at discounted valuations. An undervalued company backed by excellent financial fundamentals, such as robust revenue and earnings growth, will always elicit strong interest from professional investors. Therefore, it is likely to enjoy significant share price appreciations down the line.
The Organization for Economic Cooperation and Development predicts that declining interest rates and rising real wages will contribute to a modest increase in global economic growth this year and next year, which is one of the reasons to be bullish about dirt-cheap stocks.
Pixabay / Public domain
Our Methodology
To compile the list of dirt cheap stocks to invest in now, we sifted through screeners and reports, scanning for high-quality stocks trading at discounted valuations. From an initial list of 20 stocks, we settled on the top seven stocks that were trading under a forward P/E of 10, as of October 7, and were the most widely held by hedge funds. The stocks are ranked in ascending order based on the number of hedge funds that hold them, as of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Western Digital Corp. (NASDAQ:WDC)
Forward Price-to-Earnings Ratio: 8.13
Number of Hedge Fund holders as of Q2: 80
Western Digital Corporation (NASDAQ:WDC) is a technology company that develops, manufactures, and sells data storage devices. It is one of the dirt cheap stocks to invest in now as it continues to fire on all angles. The company delivered solid fiscal fourth-quarter results that affirmed strong demand for the company’s storage devices.
Revenues in the quarter were up 9% to $3.76 billion, driven by a 21% increase in cloud revenues as client revenue increased 3%. Western Digital Corporation (NASDAQ:WDC) also bounced to profitability with earnings per share of $1.44 compared to a loss of $0.20 a share.
The advent of the AI Data Cycle signals a turning point for Western Digital Corporation, which will cause fundamental changes in end markets and raise storage requirements while generating new sources of demand.
The AI revolution is the first clear catalyst that should catapult the company to new heights. While some businesses are concerned about artificial intelligence, demand for Western Digital storage solutions is expected to increase significantly.
The increasing computational demands of high-compute AI data centers will drive demand for data center storage solutions. It’s also important to keep in mind that enterprise spending on cloud-based platforms is still relatively new.
Western Digital Corporation (NASDAQ:WDC)’s data-center storage products are gaining prominence as cloud spending increases. Unsurprisingly, with a 29% year-over-year increase in sales, the company’s cloud segment was its biggest growth driver in the fiscal third quarter (which ended on March 29).
Amid the tremendous opportunities for growth, Western Digital is still trading at a discount with a price-to-earnings multiple of 8.13 and a sales forecast of over 50%.
In the second quarter, 80 hedge funds tracked by Insider Monkey held positions in Western Digital Corporation (NASDAQ:WDC), with total stakes amounting to nearly $4.06 billion. As of June 30, Millennium Management was the largest shareholder, holding a position valued at $379.707 million.
Here is what Parnassus Mid Cap Fund said about Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
Overall WDC ranks 2nd on our list of 7 dirt cheap stocks to invest in now. While we acknowledge the potential of WDC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WDC, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.