Google Inc (GOOG), Seagate Technology PLC (STX): Should You Buy These Tech Stocks?

Tech can be very difficult to predict. Investors often believe that they can discern an innovator from a laggard, but market trends come and go – especially in the consumer niche category. Below, I review two very different companies: Seagate Technology PLC (NASDAQ:STX) , a data-storage device producer, and Google Inc (NASDAQ:GOOG) , an internet business with broad tech diversification.

Risky business

What a turn of events Seagate Technology PLC (NASDAQ:STX) has had.

It all started early this year, Seagate Technology PLC (NASDAQ:STX) reported fiscal second-quarter data. Revenue came out to $3.7 billion revenue with over 58 million products sold. Revenues were 14% higher than the same quarter last year, and gross margins held up at 27% despite the 20% increase in capital expenditures. The company’s dividends were also increased to $0.38 per share. It is this kind of momentum that has caused analysts to become more bullish despite the industry’s supply and demand woes.

The main problem with Seagate Technology PLC (NASDAQ:STX) has been that its top products are for PCs, and the market is predictably falling. Moreover, the largest competitor, Western Digital Corp (NASDAQ:WDC) , is continuing to cut into margins more and more.

In addition, Seagate Technology PLC (NASDAQ:STX) is not doing enough to hedge against the downside by investing in new technologies. For example, Seagate’s decision to allocate some $40 million in Virident Systems for the development of a PCIe-slot SSD (solid-state drive) does very little to migrate towards smartphone and tablet demand. That doesn’t mean the product will be bad, however. Since hard drives use 3-6GB S-ATA as a transfer of data, SSD will use a direct connection to the motherboard and provide much higher transfer rates.

Seagate Technology PLC (NASDAQ:STX) remains a very risky investment. It trades at around 4 times free cash flow, but the beta is sky high at 2.5, so the stock can tank or soar. And the dividend yield of 3.3% isn’t much of a relief, since earnings are expected to erode by a rate of 3% per year. In light of the poor diversification into more sustainable business segments, I encourage avoiding the stock for now.

However, Western Digital Corp (NASDAQ:WDC), which has also doubled from the lows, is forecast for positive growth in the near term. At 8.2x past earnings and only a beta of 1.5, the risk is much less for very similar market exposure.

Why I’m a fan of this internet stock

By contrast, Google Inc (NASDAQ:GOOG) is doing a lot to innovate and increase upside. A video of the firm’s Google Glass product showcases how focused the company is on actually executing its “pie-in-the-sky” ideas of Google Inc (NASDAQ:GOOG) X.

Some anticipate a 2014 launch. I may be dead wrong in my prediction, but I fully expect the product to be popular in the market among electronics fans. There are several reasons why I feel this way: