A Disk Drive Maker with a +47.2% Profit Potential

-- By Mike Turner

I'm looking for the market to move lower until about February 12, then move smartly higher before taking another fairly significant move lower.

This week's pick is a computer storage device company that's poised to take advantage of the expected near-term strength in the market, and is fundamentally solid in its own right.

Seagate Technology (Nasdaq: STX), is primarily a computer hard disk drive manufacturer and comes in with a total technical and fundamental score of 105 out of 200.

The fundamentals are strong for this stock, as reflected in a fundamental score of 58 out of 100. The fundamentals that have the largest impact on this score include:

      The growth rate for total sales for the most recent quarter versus the same quarter a year ago is +33.3%. This compares with a growth rate in its industry (computer storage devices) of -5.2%, and the average growth rate for S&P 500 of +7.0% for the same period.

      The growth rate in sales during the previous 5-years for STX comes in at +9.5%, compared with an industry growth rate of +21.7% and an S&P 500 average growth rate of +8.2%.

      Within STX's industry its price-earnings ratio (P/E) of 23.9 makes it fairly valued.

My technical score on STX is 45 out of 100. Below are some of the key considerations:

      STX trades in the middle of Zone 3 (see the grayed-out areas in the chart above), having moved in almost a straight line from the middle of Zone 1 a little more than a year ago. This trend shows reasonably strong continuity and could indicate the stock is destined to move higher in price in the near future... notwithstanding a possible major market correction.

      Institutional ownership is 86%, which is a little higher than I like, but it does show strong support from large traders -- an indication these institutions believe that the share price is stable or could move higher, or both. A possible downside of large institutional ownership is that share prices could fall inordinately if the large traders decide to sell.

      Both the industry (computer storage devices) and the sector (technology) are in bull-mode, although the technology sector has begun to show signs of rolling over. The average price of every stock in STX's industry and sector is above the trend-line, meaning that more money is flowing in to this industry and sector than is flowing out. This is putting pressure on STX to move higher. This kind of technical activity strongly supports this trade.

(All security prices listed in this newsletter are as of the close of trading on February 5, 2010.)

We stopped out of SPDR Gold Shares (NYSE: GLD) on Feb. 4 for a -1.8% net loss since its recommendation on Jan. 26.

Pengrowth Energy Trust (NYSE: PGH) is my only remaining open trade and is up a solid +13.0% since it was recommended on Oct 2. I did not change the stop loss price for this coming week. No changes are recommended.

Important note: If you're not a subscriber to my premium trading service, Mastering the Markets, you are missing out on some of my best picks. I identify a stock with the potential for double-digit gains if my target is hit. To learn more, click here.

Thanks for reading the latest update on my open trading positions.
 

Mike Turner -- Mike Turner Co-Editor, Trade of the Week

Note: Melvin Pasternak will return with a new "Trade of the Week" next week.  In the meantime, below you'll find the latest update on his open trading positions...

(All security prices listed in this newsletter are as of the close of trading on February 5, 2010.)

Morgan Stanley Municipal Securities (NYSE: IQM). As a muni-bond fund, I still expect IQM to follow a seasonal pattern of a continued rally into mid-February. IQM is holding nicely in this choppy market; it remains well above the rising 50-day moving average. My target and stop-loss have not changed.

Quicksilver Gas Services (NYSE: KGS) shares fell below the rising 50-day moving average during the last week of January. Approaching oversold territory, they have continued falling into this month. My $19.45 stop-loss was hit on Thursday, February 4, for a -13.4% loss. The position is now closed.

Amdocs (NYSE: DOX) briefly gapped up above $30 in late January, after an analyst raised the target price to $37. On Thursday, February 4, the stock gapped down, filling the gap on news that Ericsson (Nasdaq: ERIC) has now entered the market as a competing aggregator. Amdocs remains above the 50-week moving average. My stop loss at $24.65 and target of $33.95 remain steady.

Herbalife (NYSE: HLF) shares broke important psychological support at $40 in late January. The stock is sitting below the 50-day moving average and is approaching oversold territory. The shares remain above my $37.95 stop loss.

AllianceBernstein Holdings (NYSE: AB) challenged resistance in late January at $30, but retreated into February. The stock has found support at around $25.90, slightly above my stop-loss point of $25.49. My target and stop-loss have not changed.

Toyota Motors (NYSE: TM) has had a wild ride over the last few weeks. I shorted the stock at $77, following news of a massive vehicle recall due to faulty accelerator pedals. The stock briefly went up on the promise of a solution, but dropped again on reports of faulty brake pads in the Prius model. On Thursday, February 4, Toyota regained slight ground with positive third-quarter results. The stock currently sits well below the 200- and 50-day moving averages. I believe it will fall further. My target remains $65.05. However, I am tightening my stop-loss to $75.05 to protect profits.

Important Note: If the thought of pulling in a +10%-plus gain on every single trade sounds good to you, then you need to get on my Double-Digit Trading V.I.P. list ASAP. Anyone on this list will be alerted to an important announcement in the coming days that spells out what I think is the single best way to capture double-digit trading gains for the rest of 2010. The deadline to get on the Double-Digit Trading V.I.P. list was last night at midnight -- but I'm giving you one final chance to respond right now: You have until today to become a V.I.P. All you need to do is click here and enter your email address to let me know you're interested. But please hurry, this offer is expiring as you read this.

Thanks for reading the latest update on my open trading positions.
 

Melvin Pasternak -- Dr. Melvin Pasternak Co-Editor, Trade of the Week