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Is Seagate Sinking?


One of Cramer’s favorite financial writers is telling investors to bail from Seagate Technology, the Mad Money host said Wednesday. According to the chart, the stock could be peaking.

Two weeks ago, STX reported a big upside surprise, but the stock still finished in the bottom half of its weekly trading range on heavy volume. The high volume was most likely a sign that the sellers had started pounding the stock and demand from buyers was drying up. And the following week, Seagate took another 9.2% plunge on even heavier volume.

So what are the seller’s seeing? First, they think Wall Street is too positive about this stock. Second, STX is increasing its 2010 capital spending to such an extent that it has raised fears of overcapacity. This is especially relevant in an industry like disk drives where the product is basically a commodity, and it has happened before in the past. That said. Cramer still likes Seagate because it’s cheap, trading at 5.4 times 2011 earnings with a 11% long-term growth rate. And he thinks this stock should do well going forward.

But given a choice he’d rather see investors in Intel. INTC has a better balance sheet that’s full of cash, and it has a 3.2% dividend yield. STX is burdened with debt and pays no dividend. Not to mention, things are even better for Intel because its chips are in everything from PCs to netbooks to corporate servers. Plus, Intel’s last quarter was a true blowout with bullish guidance, Cramer said.

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