Seagate's Earnings Weren't That Bad

Investors should expect a lot of volume to trade near $29 a share, and also expect bargain hunters to initiate positions under $28 as an entry.

Seagate doesn't have a lot of debt relative to cash, and the price-to-earnings multiple is very low compared to the S&P 500. The company simply didn't miss by much and I view the quality issues as a speed bump.

Here are some positive statements from CEO Steve Luczo during Monday's conference call:

... we announced today that we have raised our quarterly dividend payout 28% to $0.32 per share.
We are on plan to reduce our share count to 350 million ordinary shares outstanding by calendar year-end 2012.
In our enterprise business, we had a strong year-over-year growth, reflecting demand for cloud infrastructure build-outs and enterprise storage. Our shipments to cloud applications grew faster than the market, increasing 70% year-over-year.

If you are reviewing the recent price drop to signal a short-term buying opportunity, you are likely to find Tuesday or the opening on Wednesday to be near the sweet spot.

At the same time, there is no hurry jumping on board with Seagate for longer-term investors. Stocks that decline as a result of earnings and guidance usually take two good earnings quarters to recover. That said, I believe the odds favor a faster-than-normal recovery for Seagate.

What's the best play with Seagate? There should be a very attractive trade coming up Wednesday and or Thursday.

If it's still trading lower near the end of the day, sell out-of-the-money puts. Fear of continued losses tends to push portfolio insurance prices up dramatically.

It's not one to get greedy with, so hold on for a few days and as the implied volatility falls (hopefully with a nice dead-cat bounce) exit out with a quick hit and run for profits.

For longer-term investors, the best play is to wait until we are closer to the next earnings release for an entry.

At the time of publication, the author held no positions in stocks mentioned..

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.