Grab Your Share Of
This $169 Million Cash Hoard
The Dynamic Wealth Report
June 24, 2010
by Robert Morris, Editor
Apple fans are jumping out of their skins with excitement today. It’s
like Christmas, Hanukkah, and your birthday all rolled into one. Today
is the official release of the Apple iPhone 4.
Millions around the world are scrambling to get their hands on the
latest and greatest version of the iPhone.
According to Apple, demand for the iPhone 4 is four to ten times greater
than what it was for the iPhone 3GS. And that’s saying a lot. The
company sold over a million of those phones in just the first three
days.
But iPhones aren’t the only smartphones taking the world by storm.
According to market researcher, Gartner, a mind boggling 54.3 million
smartphones were sold worldwide in the first quarter. That’s a 49%
increase over the prior quarter.
Demand for all kinds of smartphones is clearly accelerating.
The smartphone revolution is a huge money maker for handset
manufacturers. Apple, Nokia, Samsung, and many others are raking in the
dough.
But it’s also turning into a boon for the telecom equipment makers and
their suppliers.
You see, the surge in smartphone usage is wreaking havoc on wireless
networks. With so many smartphone users streaming video, using social
networking sites, and trading photos, they’re literally tapping out
existing broadband networks.
As a result, wireless carriers are being forced to step up investments
in the network. They have to increase capacity and speed to keep
customers happy. In fact, telecom companies are expected to spend a
whopping $57.8 billion this year.
So, how can we profit from this trend?
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The obvious way is to buy shares of leading telecom
equipment makers. Firms like Cisco Systems (CSCO),
Alcatel-Lucent (ALU),
and Juniper Networks (JNPR) will certainly benefit from this trend.
However, if you’re looking for a more exciting and possibly more
profitable way to play this trend, I have just the stock for you.
Introducing, Oplink Communications (OPLK).
OPLK is a leading provider of optical networking components and
subsystems. I know it sounds complicated. Here’s what you really need to
know.
This company’s products boost the capacity, speed, and performance of
wireless networks.
OPLK sells products to nearly 500 telecom equipment makers worldwide. Their top customers are
Tellabs (TLAB) and Hua Wei Technologies. Hua Wei
is one of the top telecom equipment makers in China.
OPLK has several advantages over the competition.
They’re the number one supplier of passive optical components.
With better than 35% market share, OPLK is the clear leader in this
space. This is a huge advantage because customers tend to prefer doing
business with the market leader.
The company keeps manufacturing costs low.
OPLK recently moved their manufacturing facilities to China. This move
has dramatically lowered the company’s manufacturing costs and boosted
profit margins. It’s an important advantage because their markets are
very price competitive.
And OPLK offers one-stop-shop solutions.
In other words, the company provides custom design and manufacturing
services to meet customers’ specific needs. Customers like this value
added service. It saves them time and money on component assembly and
testing.
Because of these advantages, OPLK is growing rapidly.
Last year the company earned $0.52 per share. This year analysts are
forecasting earnings of $0.90 per share. That’s year over year growth of
73%!
And I think there’s upside to this forecast.
OPLK has been beating analysts’ estimates on a regular basis. They’ve
topped estimates in four straight quarters. And they just implemented a
$40 million stock buyback program. This will help boost earnings per
share going forward.
Despite the strong growth, these shares are incredibly cheap!
At a recent price of $14.30, the shares are trading at just 15.9x the
current year estimate. That’s a low P/E for a company expected to grow
earnings 30% a year over the next five years.
In other words, the company has a PEG ratio of just 0.53. That means the
shares are trading at a 47% discount to the company’s projected growth
rate.
Clearly OPLK is attractive on a P/E and PEG ratio basis. But the shares
are really an even better bargain than those indicators show.
Here’s why…
The market is valuing the entire company at $14.30 per share. But the
company is sitting on a cash hoard of $169.8 million. That works out to
$8.09 per share.
Simply subtract the $8.09 in cash from the market price of $14.30.
The result is illuminating.
You find the market is valuing OPLK’s business operation at just $6.21
per share. In other words, you’re getting the entire company (the
factory, equipment, technology, inventory, etc.) at a 57% discount to
the market price.
This is just too good a value to pass up. Take a closer look at OPLK for
your own portfolio. You won’t find too many fast growing companies
trading at discounts like this.
• Java ETF Jumping
Coffee prices are soaring! For years, hefty stockpiles of coffee have
kept prices in check despite low production levels and high demand. A
recent report showing stockpiles are dwindling has coffee prices surging
higher. As a result, the iPath Dow Jones – UBS Coffee Subindex Total
Return ETN (JO) is up more than 22% in the past two weeks.
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