Where Faux Wisdom Makes Real Money

 | Apr 17, 2014 | 9:12 AM EDT  | Comments
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Stock quotes in this article:

hpq

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intc

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wdc

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sndk

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aapl

Sometimes the case in the tech world gets made even when it shouldn't be, and everyone eventually accedes to it. For example, even as there is absolutely no real evidence that the personal computer isn't falling off a cliff, the consensus has developed that it has gotten better. This view says you need to buy Hewlett-Packard (HPQ) and Intel (INTC) -- which, these analysts also claim, have lots of storage kickers away from personal computers to bring out value.

That's just perceived wisdom, but it has been one of the strongest calls out there.

Or how about Seagate (STX) and Western Digital (WDC)? The consensus, as represented by short sellers -- and not unlike the view on HP -- has been that disk drives are going away courtesy of the personal computer's secular decline, and aided by increased production.

But these very basic tech components have managed to keep new supply down while at the same time becoming "low-multiple cloud plays." That's because you need to personally store your pictures in case something happens to your handset or if you run out of room. Disk-drive makers have turned out to be the hottest segment in the market. Again, these shares are rallying because there is an amazing short base in them. SanDisk (SNDK) is rallying, similarly, because it is perceived as the only pure play on the tablet revolution.

Of course, while we now love Seagate and Western Digital as cloud-computing plays, the actual cloud plays are now scorned because there are too many of them. One of the eerie analogies to the 1998-to-2000 period is that, back then, there was such an initial lack of Internet plays that they all got bid up. (The revolution began when CBS MarketWatch came public in 1998.) It took a while to saturate, almost two years. But once you got the saturation, the group was history. At the current juncture, cloud is at saturation levels -- but the existing players, at least, are profitable. Still, as hot as the drives are despite their old-fashioned nature, the software-as-a-service plays are just plain full-up.

For the longest time we heard that it didn't really matter if Apple (AAPL) introduced a bigger-screen handset. Turns out that the big incremental sales pick-up comes from at least a 5.1-inch -- that is, Samsung's Galaxy -- and even that might not be big enough. When you listen to the Google (GOOG.L, GOOG) call, you get that bigger is better, because people are spending a huge amount of time on their handsets and they simply are too small. The iPhone is too small. Daymond John, the Shark Tank judge who predicted Samsung's Galaxy would catch and pass the iPhone a year before it happened, basically said same this week when he was on Mad Money.

One thing is absolutely for certain: This newfound conventional wisdom makes you money pretty much on good and bad days. The rest is just a free fire zone for the shorts. This is in part because of secondary offerings, and in part because of insider selling, and in part because there are so many more deals in the pipe.

But they aren't going to have any more companies like Intel, SanDisk, Seagate or Western Digital -- with their share buybacks and dividend boosts and no insider selling to speak of -- coming public any time soon. Maybe that, more than anything else, is real reason for the dichotomy.

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