SanDisk Stock Hits Bargain Territory (SNDK)

Money Morning's "unloved" stock to buy this week is memory chip maker SanDisk Corp. (Nasdaq: SNDK).

An unloved investment is one that's been beaten down - but is actually a great value. Investors then get an amazing entry point into a good long-term investment.

Two Money Morning experts like SanDisk stock. Both Chief Investment Strategist Keith Fitz-Gerald as well as Defense & Tech Specialist Michael Robinson have spoken up for SNDK stock recently despite a sudden 15% drop earlier this month.

SanDisk Corp.: About the Company

SanDiskSanDisk was founded in Palo Alto, Calif., in 1988 by Eli Harari, Jack Yuan, and Sanjay Mehrotra as "SunDisk." In 2013 it moved its headquarters to Milpitas, Calif. The company helped pioneer the "flash memory," that is used in digital cameras, smartphones, and tablets. From its Silicon Valley roots, SanDisk branched out through the 1990s, opening offices in Japan, Germany, Hong Kong, and the Netherlands. It later launched offices in Russia, China, Singapore, the United Arab Emirates, and Taiwan. SanDisk went public in 1995. Today the company makes solid-state disk drives (SSDs) for PCs as well as portable USB flash drives. SSD drives use flash memory instead of a spinning disk to store a PC's data, making them nearly 100 times faster. SanDisk has a market cap of $17.5 billion and annual revenue of about $6.6 billion. SanDisk employs about 5,500 workers.

SanDisk stockSanDisk Stock: Why It's Unloved

From early 2013 to July of last year, SanDisk stock had a great run, rising 63% to $108.77. But it's been a rollercoaster since. In mid-July the company forecast revenue outlook below analyst expectations, knocking more than 12% off the SNDK stock price. Then the market slump hit, pushing SanDisk stock down to about $82. Strong earnings in October drove a recovery in SNDK stock all the way to $106.64 on Dec. 8. But more market turmoil in December pushed SanDisk stock back down into the mid-90s. Then, on Jan. 12, the company issued another revenue warning. It said fourth-quarter revenue would come in below forecasts. Worse, SanDisk lowered its gross margin estimates for the quarter as well. The company blamed a glut in the market for flash memory. The bad news sent SNDK stock down more than 14% in one day. The stock slipped further in the days afterward, and at $79.04 is now down more than 26% just from Dec. 8.

Lower guidance is never a good sign, but in SanDisk's case the sell-off is clearly overblown...

Why SanDisk Is a Stock to Buy

SanDisk's problems are short-term. It remains the dominant maker of flash memory for the world's consumer electronics, a market that continues to grow rapidly.

"This is a classic overreaction," Robinson said of the recent drop in SanDisk stock. "I believe we'll see shares rising again shortly because the need for memory continues to grow at an incredible pace." But what has Robinson most excited is the company's expansion into a new area - flash data centers. It's a way to apply its expertise in flash memory to a huge new market, the cloud and Big Data. And SanDisk's wise purchase of Fusion-io last year brought with it two marquee clients: Apple Inc. (Nasdaq: AAPL) and Facebook Inc. (Nasdaq: FB).

And Fitz-Gerald added that SanDisk only reduced its revenue forecast by 4% and its gross margin forecast by 4.25%. "And yet traders punished the stock to the tune of a 14% haircut. It doesn't make sense," he said.

Investing in SanDisk Stock (Nasdaq: SNDK)

SanDisk reports earnings on Jan. 21, so investors might want to wait for that news before jumping in. Any disappointing news there could push SanDisk stock down a few more dollars (and making it an even better bargain). Even the current price isn't a bad entry point, though. The one-year target price is $104.34, a 32% gain from the current SNDK stock price. And that's probably conservative considering the price-earnings ratio is just 16.44. The P/E for competitor Toshiba Corp. (OTCMKTS: TOSYY) is 26.79.

More Bargains to Buy for 2015: Last week's "unloved" stock to buy was Volkswagen AG (OTCMKTS ADR: VLKAY). The world's second-largest automaker is down about 20% over the past 12 months. But Volkswagen has some big plans in the works that Wall Street has overlooked...

Follow me on Twitter @DavidGZeiler.

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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