The Hidden Tech Boom

 | Apr 02, 2014 | 3:00 PM EDT
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The technology of the future, at the given moment, is the continued migration to mobility and the ecosystem that it is creating. At least that is where it seems most investors are aware of. After all, the media has been focused on smartphones, social media. tweeting, the cloud, and all the companies at forefront of that revolution. There's another, deeper trend going on it tech that is real, perhaps not as exciting from a headline standpoint, but potentially very exciting from a growth standpoint.

If you think closely and carefully about all these cool things happening in technology, you might figure out that this change in the way we communicate, both consumer and professional, creates demand for another very specific need: data storage. And I'm not talking about the chips being made for phones and tablets by companies like Qualcomm (QCOM), although I think investors have seen how Qualcomm has benefited from that demand over the past several years.

I'm moving up the chain, looking at commercial side of things, not the personal side. Businesses all have data that are precious and need to be preserved. Think about the billions and billions of units of data Facebook (FB), Google (GOOG) and Amazon (AMZN) hold. Those data are housed in servers, which require storage drives to house the terabytes of data that are growing exponentially.

Those drives are being made primarily by Seagate Technology (STX) and Western Digital (WD), two very high quality companies that you rarely hear about in tech land unless you are involved in the industry. For long-term investors, both seem like solid conservative opportunities. Seagate yields 3.1% and trades for approximately 10x forward earnings. Western Digital yields 1% and also trades for 10x forward earnings. Both have very clean balance sheets, although Western Digital has a net cash position.

More importantly, in addition to the tech giants, thousands of small and medium businesses (SMBs) all have valuable data, IT department, security and surveillance needs that are now being stored electronically and that require storage disk drives. You may not get the tech style growth most are accustomed to in this industry, but you do have a space in the market that is dominated by two players -- with perhaps little in the way of future competition. Looking closer at these two is well worth the time. They are both high quality businesses that provide an essential product to the digitization of the economy.

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