From Porter Stansberry in the S&A Digest:

We wrote it, did you short it?

In the fiscal year after my 2003 buy recommendation, Western Digital saw revenues of $3 billion and earnings of 74¢ per share. By 2008, Western Digital revenues totaled more than $8 billion, and earnings per share hit nearly $4. In only four years, Western Digital grew its revenues by 166% and its earnings per share by 429%. Its share price rose from around $10 to nearly $50. That's a boom. So why would I recommend shorting a digital-storage maker in the face of escalating rates of bandwidth growth?

Two reasons. First, most of the digital storage fueling the Internet growth today is being installed at the corporate level... Even worse for Western Digital is the increasing efficiency of solid-state storage devices – what's commonly known as "flash" media storage. – Porter Stansberry, February 2010, Porter Stansberry's Investment Advisory

Yesterday, analysts cut ratings for both Western Digital (WDC) and Seagate Technology (STX), the two leaders in the hard-drive sector – and my two favorite short sales.

Kaushik Roy from Wedbush Morgan said pricing, extra capacity, and a seasonally soft quarter will hurt the companies. He also says their earnings margins have peaked – Western Digital and Seagate shares rose 295% and 344% last year, respectively. The companies' margins peaked around 30%, which Roy says will spur vendors like Dell and HP – whose margins are hurting – to hammer WDC and STX on pricing.

Roy is missing the biggest reason to sell these companies short... Their product is obsolete.

Crux Note: To learn more about Porter Stansberry's Investment Advistory, and access Porter's full writeup, click here.

More from Porter Stansberry:

Porter Stansberry: The one idea that destroyed America

Porter Stansberry: The 3 types of stocks you should always short

Porter Stansberry: This looming gov't expense will crush the dollar