The best performing stock this year for the Fund is Western Digital (WDC), which appreciated 47.5% and closed at over $62. We have written about WDC in the past, but, as a reminder, the company is the largest manufacturer of hard disk drives (HDDs) used to store information. The Fund initially purchased WDC in 2007 in the mid- teens and then added substantially to the position during the financial crisis when the stock traded as low as $10 a share in 2009.
WDC has been among our largest weightings over the past year, when the stock was trading in the low $30s. The stock was very cheap, trading then at less than 5x earnings, primarily because investors were focused on the company's revenue exposure to the declining desktop and notebook computer sectors, which are being challenged by tablets and other mobile devices. We focused on the entire product spectrum, which included enterprise drives that generate 3x more revenue per unit than PC drives and also have higher profit margins. As businesses and individuals shift more of their computing and storage requirements to cloud-based architectures, the vast majority of that information resides, and will continue to reside, on HDDs. WDC supplies various types of enterprise HDDs, but is very focused on the particularly fast-growing market niche of nearline storage products. We are optimistic about WDC's earnings potential this year. Thus, with currently about $9 per share in net cash per share, we believe WDC has good growth potential. Nonetheless, we have trimmed back our position, given the stock's substantial appreciation, in order to keep the weighting at a desired level and to reflect the new risk-to-reward ratio at these higher prices.
From FPA Capital's second quarter 2013 commentary.