Chip Recovery Doubts Create A Buying Opportunity
The Dynamic Wealth Report
June 10, 2010
by Robert Morris, Editor
Fear over the European debt crisis is spreading faster than the Black
Death. The Black Death wiped out 30% to 60% of Europe’s population (over
100 million people) during the Middle Ages.
But it took two years to achieve its grisly end.
The panic over Europe’s debt crisis (admittedly not as horrific as a
bubonic plague epidemic) is moving much faster. This cruel event is
causing massive wealth destruction in just a matter of weeks.
In fact, since fears of a Greek default reached their apex in late
April, the market has lost over $1.3 trillion.
The latest victim of the European contagion “fear epidemic” is the
semiconductor sector. In just the past several days, chip stocks have
dropped 8.8%.
A few Wall Street analysts are to blame.
They’re saying the semiconductor industry’s recovery will falter if
Europe slips into a “double dip” recession. They’re concerned European
demand for computers, cell phones, and other electronics will dry up.
Then to top it off, they’ve downgraded Intel (INTC) and
Broadcom (BRCM)
to Neutral (whatever that means).
I think these analysts are blowing things out of proportion.
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Don’t get me wrong. Europe is an important market. But this
recovery is a global recovery. Demand is surging all over the world.
Just last week, prominent market research firm, Gartner, raised their
2010 revenue estimate for the semiconductor industry. They were
expecting a 19% year over year increase in global chip sales. Now
they’re forecasting a whopping 27% jump!
Why is Gartner boosting their outlook so much? Simply, they’re seeing
“an accelerated broad-based recovery in all regions and most product
categories.” (Europe was not flagged as a potential risk to this
estimate.)
And they’re not the only ones seeing a surge in global demand.
Samsung, the world’s largest producer of memory chips, recently posted
record revenues in the first quarter. They’re seeing very strong demand
for chips and flat screens. And most importantly, they “don’t see any
impact from the Euro Zone crisis on the semiconductor market”.
Then yesterday, Texas Instruments (TXN) raised their revenue and profit
outlook for the second quarter. When asked about Europe, the company’s
head of investor relations said they “haven’t seen any change yet in
demand”.
Another chip maker who recently raised second quarter earnings guidance
is Altera (ALTR). They’re seeing strong new product sales. No mention of
demand dropping off in Europe.
Clearly, major players in the semiconductor industry aren’t seeing any
fallout from the European debt crisis. And if European demand should
slacken, robust demand from Asia and North America should make up for
it.
Based on this overwhelming evidence, I’m sticking to my bullish call on
the chip industry… and the chip equipment makers.
Speaking of which…
I have uncovered another fast growing, misvalued semiconductor equipment
company. Now I’ve already told you about the huge profit opportunities
in MKS Instruments (MKSI) and Novellus Systems (NVLS).
Today I’d like to introduce Teradyne (TER).
Teradyne is a leading global provider of semiconductor testing and
inspection equipment. Their customers are leading companies in the
semiconductor, electronics, automotive, and networking industries.
With a market cap of $1.8 billion, Teradyne is a quality mid-cap growth
stock. And as you’ll soon find out, the shares offer huge profit
potential.
Teradyne is just starting to see growth accelerate.
Take a look at the company’s blowout first quarter numbers.
Revenue increased 23.4% sequentially and 173.3% year over year to $329.6
million. That handily beat management guidance and analysts’ estimates.
Best of all, demand was strong across the board from memory chip makers
and foundries.
Net income soared 109% sequentially to $61.3 million. Earnings jumped
94% to $0.33 per share. And both figures easily beat analysts’
estimates.
A robust quarter by any measure.
What’s more, management is forecasting more strong growth in the current
quarter.
They’re expecting revenue to increase 18% to 27% sequentially. And
they’re looking for earnings per share to rise 36% to 58%.
Despite this strong growth outlook, the shares are seriously misvalued.
Thanks to the market correction, Teradyne shares are down 26% from their
52-week high of $13.37. This presents a golden opportunity to pick up
shares at bargain prices.
At $9.88, the shares are trading just 6x the 2010 earnings estimate of
$1.60. That’s a very low P/E for a company expected to grow earnings 18%
a year over the next five years.
In fact, Teradyne’s P/E is less than half the industry average of 13x.
I think you can see the huge upside in this stock.
At just 10x the 2010 estimate, Teradyne’s worth $16.10. That’s a
potential profit of 63%!
Using a P/E equal to the industry average, the shares are worth $20.80. A potential gain of 111%!
Like I said, Teradyne is a screaming bargain. Don’t miss your chance to
make some serious money with this quality mid-cap over the next year.
• Energy ETFs Surging Higher
A good jobs report in the U.S. is restoring optimism for the economic
recovery. And a bigger than expected drop in oil inventories is
driving oil prices higher. As a result, energy ETFs are rallying.
Direxion Daily Energy Bull 3X Shares (ERX) is soaring over 10%,
ProShares Ultra Oil & Gas (DIG) is up over 7%, and
Energy Select Sector SPDR (XLE) is tacking on nearly
4%.
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