Wall Street’s love affair with the technology sector just won’t quit. The ardor is cemented more by cold hard cash flow than by sweet nothings.

After a brutal fourth quarter in 2018, technology stocks are resuming their upward trajectory. The benchmark Technology Select Sector SPDR Fund (XLK) is up 21% year to date, compared to a gain of 14.3% for the S&P 500.

As the technology sector bounces back, are you looking for a tech stock with stellar growth prospects but a reasonable valuation? One stock that ostensibly fits the bill is storage device maker Western Digital (NSDQ: WDC).

From the videos, music and documents you share with friends and family on social networks, to servers that form the backbone of enterprise data centers and cloud-based computing, to desktop and notebook computers that fuel personal productivity, Western Digital storage products help millions of people store, share and protect their valuable digital content.

The bulls say Western Digital is an under-appreciated gem that’s positioned to benefit from unstoppable technology trends. The bears say that WDC’s glory days are waning, as demand cools for the company’s products amid a global glut of memory devices.

Despite the company’s market leading position and advanced products, Western Digital’s stock has been getting punished by bearish analyst sentiment concerning the memory device market.

In this tug-of-war between the bulls and the bears, who’s right about WDC? Let’s find out.

What Is Western Digital?

San Jose, California-based Western Digital (market cap: $14.3 billion) makes computer memory devices. Key products include hard disk drives (HDD) and solid-state drives (SSD) for a range of products.

Western Digital is targeting leading-edge tech areas such as autonomous cars, artificial intelligence (AI), machine-to-machine (M2M) learning, the Internet of Things (IoT), virtual/augmented reality (VR/AR), 3D imaging, and the cloud.

How Has Western Digital Stock Performed?

• Over the past 12 months, WDC has declined 45.2% and the S&P 500 has gained 11%.
• Over the past two years, WDC has declined 42.1% and the S&P 500 has gained 21.7%.
• Over the past five years, WDC has declined 44.1%, the S&P 500 has gained 57.9%, and the benchmark iShares PHLX Semiconductor ETF (SOXX) has gained 155.1%.

How Has Western Digital Performed In 2017/2018?

• In 2017, WDC gained 14.5% and the S&P 500 gained 19.4%.
• In 2018, WDC lost 55.5% and the S&P 500 lost 7.5%.

Who Are Western Digital’s Rivals?

As with Western Digital, these companies are making memory products that target the markets for autonomous cars, AI, M2M learning, IoT, VR/AR, 3D imaging, and the cloud.

Seagate Technology (NSDQ: STX)

Seagate (market cap: $13.5 billion) designs, manufactures, and sells electronic data storage products, including HHDs, SSDs, and solid state hybrid drives.

Based in Ireland, Seagate is considered the major direct rival to Western Digital. Seagate’s products are designed for enterprise servers, mainframes, and workstations; for desktop and notebook computers; and for various end user devices, such as digital video recorders, gaming consoles, personal data backup systems, portable external storage systems, and digital media systems.

Micron Technology (NSDQ: MU)

Based in Boise, Idaho, Micron Technology provides semiconductor systems such as dynamic random-access (DRAM) and NAND products for computers, servers, networking devices, communications equipment, consumer electronics, and industrial applications. Micron sports a market cap of $46.7 billion.

Micron has partnered with Microsoft (NSDQ: MSFT) in developing a product to protect IoT devices from hackers.

Read This Story: Our Micron Technology Stock Prediction In 2019 (Buy or Sell?)

Intel (NSDQ: INTC)

With a mammoth market cap of $127.5 billion, Santa Clara, California-based Intel is the largest maker of semiconductors in the world.

The semiconductor world is divided between fab and “fabless” companies that design the chips that fab companies produce. Intel has a foot in both worlds, as a designer and producer of chips. Intel currently produces an ultra-fast SSD product called Optane.

These are just a few of WDC’s major competitors; the memory market is fiercely competitive.

Read This Story: Our NetApp Stock Prediction in 2019 (Buy or Sell?)

Will Western Digital Stock Go Up In 2019 (Should You Buy)?

The consumer storage device market generated revenue of $14.25 billion in 2016 and is projected to reach revenue of $18.8 billion in 2025, at a constant annual growth rate of 3.3%.

Keep your eye on the rapid proliferation of flash memory demand. Flash memory is a type of electrically erasable programmable read-only memory.

This video provides a quick explanation of a flash drive.

3D NAND flash memory is the new standard that meets the high-capacity, high-performance requirements of the latest smartphones, tablets, laptops, and VR/AR gear. The overall NAND global market is projected to reach about $39 billion in annual revenue by 2022, as OEMs in the PC and smartphone markets upgrade the storage specifications of new products.

Western Digital decided to jump with both feet into the flash niche, by purchasing NAND flash player SanDisk in 2016 for $19 billion.

Nearly all of the tech sector’s growth in coming years will stem from what analysts call the “Third Platform,” which includes mobile devices and apps, cloud computing, big data analytics, and social networking.

Western Digital is particularly well positioned to leverage the burgeoning demand for cloud-based computing, which relies on a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server or a personal computer.

Western Digital’s industry typically is cyclical. In 2019, however, demand for WDC’s sophisticated products should be less susceptible to the ups-and-downs of the economic cycle, making the stock inexpensive at its current level.

WDC’s 12-month forward price-to-earnings ratio (FPE) is 9.3, cheaper than the FPEs of STX (10.3) and IBM (10), higher than MU (7.1), and a deep discount to the S&P 500 (17.5).

Will Western Digital Go Down In 2019 (Should You Sell)?

Softening demand, uncertainty from the U.S.-China trade war, and relentless competition have weighed on Western Digital’s operating results.

WDC reported revenue of $4.2 billion for its second fiscal quarter ended December 28, 2018. Operating income was $176 million with a net loss of $487 million, or ($1.68) per share. In the year-ago quarter, the company reported revenue of $5.3 billion, operating income of $955 million and a net loss of $823 million, or ($2.78) per share.

Sentiment for Western Digital has been bearish ever since a series of analyst downgrades last year and concerns that memory device pricing would come under pressure.

On the extreme end, the pessimists contend that SSD prices could fall as much as 50% this year, which would further squeeze WDC’s margins. The naysayers on Wall Street also argue that Western Digital is hobbled by enormous debt stemming from its SanDisk acquisition.

WDC shoulders total debt of $10.6 billion, with a high debt-to-equity ratio of 0.97. An economic downturn could prove devastating to the company.

Overall Western Digital Forecast And Prediction For 2019

The bull case for Western Digital is stronger.

Worries about Western Digital’s debt are overwrought. Western Digital’s free cash flow in 2018 reached $3.3 billion, up from $2.8 billion in 2017. The company generated $469 million in cash from operations during the second fiscal quarter of 2019, ending with $4.1 billion of total cash, cash equivalents and available-for-sale securities. That’s a lot of financial firepower.

Meanwhile, concerns about a glut of memory chips are off the mark. The glut has resulted from a supply-and-demand imbalance that should prove ephemeral. The longer-term trends regarding digital media proliferation, storage, and cloud computing are on WDC’s side.

At the same time, Western Digital is reaping synergies from its SanDisk acquisition. By gaining control of SanDisk’s portfolio of NAND chips and SSDs, Western Digital eliminated SanDisk’s threat to WDC’s core products.

Western Digital is an oversold tech stock poised for growth. The stock’s juicy dividend yield of 4.37% is further enticement to pick up shares of WDC at an attractive price. Exaggerated fears about the memory market will become but a memory.

John Persinos is the managing editor of Investing Daily.