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FPA Capital Fund on Western Digital
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Western Digital has been in the portfolio since 2007 when we initially purchased the stock in the mid teens. We aggressively added to the position during the financial crisis when the stock traded as low as $10. WDC, which closed at $41.39, along with Seagate Technology, dominates the Hard Disk Drive (HDD) business. WDC has roughly 40% market share of an approximate 700 million unit world-wide market. During the first quarter, WDC closed its deal to purchase Hitachi’s HDD business for $4.8 billion. We believe this deal will add substantial earnings and free cash flow to the company over the next couple of years. Consensus earnings estimates for the combined company recently were increased to over $8 for WDC’s fiscal (June) year end 2013.
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The Strategy of Ben Graham – Warren Buffett’s Mentor
From 1923 to 1957 Warren Buffett’s mentor, Ben Graham, followed a strategy of investing in net-nets. He said: “It always seemed, and still seems ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the...net current assets alone…the results should be quite satisfactory. They were so in our experience, for more than 30 years.”Today net-nets are rare. They are collected under GuruFocus’ Net-Net Screener. GuruFocus also publishes a monthly newsletter which recommends the safest net-nets. All of these are included in GuruFocus Premium Membership.
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