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Go-Go Disk Drives

Turnarounds are starting to brighten the outlook for tech stocks. And savvy pros have their eyes on Western Digital (WDC): After two years in the red, this big disk-drive maker snapped back in fiscal 2002, ended June 30, racking up earnings of $65.4 million, or 34 cents a share. Its stock was beaten down from 54 in 1997 to 3 in July, 2002. It has since jumped to 9.93. "And it isn't over," says Joseph Phillips of Redwood/Technimentals Research, who rates the stock a buy, figuring it's worth 15 based on fundamental and technical measures. Zachs Investment consensus estimate for 2003 is 84 cents a share. Phillips says WDC's new hard drive, the ATA WD Raptor, has out-of-the-box storage applications beyond PCs. Demand has surged -- not only from customers who archive lots of data but also from greater use of home-entertainment gear such as audio-video recorders, video games, and MP3 players.

"WDC's Raptor represents a new era in disk drives," says Phillips, and the sharp rise in demand "signals a big change in WDC's outlook." The fast, reliable Raptor appeals to a budget-conscious market, he notes, and is replacing PC-based storage systems. Phillips expects "strong fundamental performance" for the next five years. Rick Plummer of Value Line says WDC's stock is "top-ranked for the year ahead" with "very favorable earnings and share-price momentum."

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. By Gene G. Marcial

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