Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Seagate Technology PLC (STX), Outerwall Inc (OUTR): Small-Cap Tech Names Cheap After Earnings

Seagate Technology PLC (NASDAQ:STX)Finding value in technology stocks isn’t easy. The industry is known for high multiples and very little forward visibility, which is why so many value investing legends like Warren Buffett or Seth Klarman typically avoid technology names.

Sometimes Mr. Market delivers opportunity, however. These two small-cap tech stars deserve a bid, even after recent earnings disappointments.

Investors dump hard drives

In the fourth quarter, Seagate Technology PLC (NASDAQ:STX) beat on the top and bottom line, posting earnings of $1.20 per share, above analyst estimates of $1.19. Sales beat by $10 million, for $3.43 billion during the quarter.

That wasn’t good enough for investors, however, as shares dropped by more than 8% after earnings.

Seagate Technology PLC (NASDAQ:STX) suffered from what investors like to call a “tough lap” over last year. In the fourth quarter of 2012, Seagate Technology PLC (NASDAQ:STX) sent twice as much to its bottom line and posted sales 33% higher than in the current quarter.

We shouldn’t be surprised that Seagate Technology PLC (NASDAQ:STX) can’t keep up with earnings or sales from 2012. Last year’s top-line was buoyed by a shortage of hard disk drives after a flood in Thailand. Temporary flooding and a loss of supply gave the two major players, Seagate Technology PLC (NASDAQ:STX) and Western Digital, pricing power that allowed for margin expansion.

The economics of the hard disk manufacturing business are returning to normalcy.

As it turns out, normalcy isn’t all that bad. Seagate generated $394 million in operating cash flow, distributing $137 million to shareholders as dividends, and repurchasing nearly $42 million worth of stock. Going forward, the growth of the cloud should continue to drive hard disk sales as solid-state drives cost six times more than HDDs on a storage-per-dollar basis.

For the full year, Seagate earned $1.8 billion, which leaves Seagate Technology PLC (NASDAQ:STX) to trade for just 8 times fiscal 2013 earnings. Given the company’s big discount to the market, I still think it’s worth a bid by value-oriented investors who like the big dividend yield of 3.78%.

Money-making machines fall out

Outerwall Inc (NASDAQ:OUTR) made a business of coin counting and DVDs by kiosk, but investors aren’t happy with its latest earnings report. The company’s strongest segment, Redbox, posted its second decline in same store sales of 6.8%.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.