Tech stocks have been on a strong run for the past few quarters, and many of them now look pricey. Yet the sector still offers attractive bargains.

Right now, Western Digital Corp. (Nasdaq: WDC) is arguably the best value around.

Western Digital makes one of tech’s least glamorous products: hard disk drives. These data storage units are found in devices such as PCs, laptops, tablets and video cameras.

It’s a huge market and for Western Digital, a highly profitable one. During the past three fiscal years, sales rose at nearly a 17% pace to $15.1 billion, while earnings more than doubled to $6.68 per share.

Western Digital’s stock has been trouncing the S&P 500, as the chart below shows.

Yet in spite of big stock gains, Western Digital is not fully-valued. Shares of the firm still only trade for about 14 times trailing 12-month earnings, and the forward price-to-earnings (P/E) ratio isn’t much above 10. Those are exceptionally cheap numbers next to the Nasdaq’s trailing and forward P/E ratios of 24 and 19, respectively.

Oftentimes, stocks are underpriced because the market just doesn’t see all that much future growth potential. In Western Digital’s case, the long-term concern may be that the hard disk drive industry — which accounts for 95% of revenue — is a dead-end street.

Hard disk drives are gradually losing ground to higher-performing flash memory units known as solid-state drives. And a large percentage of hard disk drive orders come from the PC industry, which has been in decline for some time.

However, it’s important to keep things in perspective. The market for hard disk drives still dwarfs that for solid state drives and should for many years. Affordability is a key factor here: hard disk drives are about a seventh the cost. Moreover, steady innovation has led to progressive improvement in the speed and storage capacity of these drives.

#-ad_banner-#These features should support demand, which is showing signs of picking up after several years of steady declines. Last year, for example, worldwide hard disk drive shipments rose about 2% to 564 million units. Looking forward, analysts forecast a solid 5% compound annual rate of growth, to 721 million units in 2019, says Forbes.

With a 45% market share, Western Digital is best positioned to exploit rising hard disk drive demand; main rival Seagate Technology Public Ltd Co. (Nasdaq: STX) holds 39% of the market. Moreover, management is focusing aggressively on hard disk drive fastest growth area — enterprise storage, large-scale and highly reliable electronic data storage for businesses.

The market for this service is exploding as companies shift to cloud-based storage. The enterprise-strength services command much firmer pricing than consumer data storage services.

In fiscal (June) 2014, Western Digital’s enterprise-class hard disk drive shipments jumped 12%, compared with only a 2% rise in hard disk drive shipments to the PC market and a 7% decline for laptops. Since fiscal 2009, enterprise hard disk drive shipments have soared fivefold to about 30 million units, and analysts see that figure nearly doubling again to around 59 million by 2021.

The firm is also jumping on the burgeoning enterprise solid state drive market, which is set to nearly triple to $7.2 billion in 2017 from $2.5 billion in 2012. This year, Western Digital is expected to post enterprise solid state drive sales of $820 million, more than three times the $250 million it generated with these products when it entered the market three years ago.

Much of that growth is attributable to smart acquisitions, especially a $4.5-billion buyout in 2012 of Hitachi Global Storage Technologies, the hard disk drive segment of Hitachi Ltd. (OTC: HTHIY). Besides boosting hard disk drive-related operations, the deal served as a launching pad for the buyout of several leading solid state innovators such as sTec, VeloBit and Skyera, all of which now are incorporated into Hitachi Global.

Such additions are enabling Western Digital to quickly diversify out of the shrinking PC market, which now accounts for just over 60% of product shipments, compared with more than three-quarters at the end of 2012.

Those purchases are also helping to cement Western Digital’s lead in terms of product quality. According to recent data reported by InfoWorld, Western Digital’s hard drives generally show much lower failure rates when compared to those sold by rival Seagate. The data, compiled by cloud backup service BlackBlaze, Inc., compare each firm’s products by storage capacity in terabytes.

Western Digital’s financial health is solid. The firm carries below-average debt for its industry and has a high free cash flow yield of nearly 9%. Cash and equivalents of $4.8 billion are roughly three times the amount needed to run the business.

Also, the firm hasn’t written down any goodwill in the past decade, Morningstar analysts point out. That’s a clear sign that acquisitions have lived up to expectations.

Risks To Consider: Despite great long-term returns, shares of Western Digital are down about 16% this year. Along with the other concerns I mentioned, investors are likely punishing the firm because of its high exposure to the strong dollar, stemming from the fact that three-quarters of sales come from outside the United States.

Action To Take –> Don’t fret over the dollar’s effect on Western Digital. It should be a relatively short-term concern. Moreover, Western Digital likely has some immunity because of its market share and product quality advantages, which limit the ability of customers to find better or cheaper options.

With such a firm grip on the hard drive market, the company is set to boost profits by at least 7% per year, perhaps more once dollar pressures subside. At the current earnings multiple, this implies at least 40% upside for Western Digital’s stock through 2019.

A mountain of cash and strong free cash flow should allow the company to regularly raise the dividend it initiated in 2013. The current payout of $2.00 per share translates to a decent 2.2% yield.

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