More on the Seagate trade

A few weeks ago, when the stock was trading at about $18 a share, I wrote a column called, “Seagate: A wildly cheap stock with a chart that’s on fire.

First off, I want to thank Robert Marcin, whom you’ve seen me call “The best value investor I know” for tipping me off to the Seagate breakout. This is from that Seagate column:

…Like I said, Bob can be cut-throat. He don’t mess around. And he’s by far the single best value stock picker I’ve ever seen. So when I saw this headline “Seagate: Cheap Stock, Great Chart” and this start to his latest column, my interest was immediately piqued:

“Every once in a while one my deep value style comes across a name that is compellingly cheap despite a big move and a good chart. Seagate is that stock, right here right now.”

I’ll quote some more from his STX analysis because it is spot on and I think it’s still time to buy some STX calls for a trade:

“At $18, the stock trades for only 10x’s earnings…….for this QUARTER. Because of the Thai flooding and the Samsung deal, Seagate will have blowout profits this March quarter, and in calendar 2012 as well. I am estimating around $6-7 in eps this year. I also expect the company to generate $3 billion in free cash flow which will be returned to shareholders via CEO Steve Luczo’s excellent capital allocation program.”

Think about that — a tech stock trading at 10x this quarter’s (not this year’s) earnings.

As I outlined at the time (see Two new buys this morning for details), I was buying some March STX calls with strike prices right around the quote that STX was trading at the time, about $18-20. Those have been a big winner for me. Of course, the question, as always for the trader is — what to do now?

Guess what.  Seagate’s still wildly cheap. The only problem is that the chart is now, shall we say, “extended”.  So here’s what I’ve done with my Seagate calls.  As I mentioned Friday I went ahead and sold more than 1/3 of my STX calls, locking in a 500% plus gain.

I’m holding the rest of the calls for now and I’m going to look to sell them down on further rallies, even as I’m going to start buying some higher priced, longer-dated calls in STX now.