The Best Trend In Tech Just Got Better
The Dynamic Wealth Report
June 17, 2010
by Robert Morris, Editor
One of my favorite things to do is read the emails from Dynamic
Wealth Report readers. It helps me stay attuned to the issues
important to you.
However, I’m always flabbergasted by a certain kind of reader response.
Among the thousands of legitimate compliments, criticisms and
suggestions, there are always a few “crazy” emails.
They all say essentially the same thing… “the Dynamic Wealth Report
doesn’t publish any real money-making opportunities.”
Regular readers know this is just plain hogwash.
All of us at the DWR work very hard to bring you actionable trading
ideas on a daily basis. Just look through the archives.
You’ll find tons of articles recommending real trades in stocks, ETFs,
options, currency, commodities, and even bonds.
Many of these ideas have produced opportunities for big profits for
thousands of our readers. In fact, I’ve recommended a couple of
profitable trades in just the past few weeks.
And I have another winning idea for you today.
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As you know, I’ve been pounding the table on chip
equipment stocks. Over the past few months, I’ve written
extensively about the huge growth opportunity in this sector.
You’ve read about the fundamental reasons supporting a robust recovery.
You’ve seen the strong growth projections for the industry. And
you’ve heard about industry leaders raising revenue and earnings
guidance.
Hopefully, you’ve already racked up some terrific gains.
Last week I introduced Teradyne (TER), a leading
manufacturer of semiconductor testing equipment. At the time, the
shares were trading at $9.88. Today they’ve traded as high as
$11.94.
That’s a better than 20% gain… in just one week!
And how about Novellus Systems (NVLS)? I
recommended this maker of thin film deposition equipment three weeks
ago. They were trading at $24.86. Since then, they’ve traded
as high as $28.67.
That’s good for a gain of 15%!
Best of all, this is just the beginning.
Just a few days ago, Gartner issued an extremely bullish forecast. They’re expecting global chip equipment sales to top $35 billion in
2010.
That’s a whopping year over year increase of 113%!
More importantly, Gartner’s forecast indicates the chip equipment
recovery is gaining momentum. This new forecast is 16% higher than
the one issued just three months ago.
So, how can you profit from this trend?
As promised, I’ve got another fast-growing yet misvalued chip equipment
stock for you.
Nanometrics (NANO) makes high-performance process
control metrology systems. Chip makers use them in the fabrication
of semiconductors, high-brightness LEDs, data storage devices, and solar
cells. These systems improve device performance and manufacturing
yield.
In other words, they help improve quality, reduce manufacturing costs,
and boost profits.
Business is starting to ramp up at NANO in a major way.
Take a look at their first quarter numbers compared to the fourth
quarter.
Revenue jumped 41% to $37.2 million. Gross margin improved to
55.3%. And earnings increased from a loss of ($0.01) to a profit
of $0.26 per share.
Best of all, they handily beat analysts’ estimates of $0.11 per
share.
The huge quarterly growth in revenue, gross margins, and earnings shows
business is accelerating. And this is just the beginning. Management says “we’re still at the early stage of the current upturn in
capital spending.”
But won’t the crisis in Europe derail NANO’s recovery?
No way. NANO shouldn’t see any negative impact from Europe. They
sell most of their systems to customers in the U.S. and Asia. Just 5% of
revenue last year was generated in Europe.
And their top customers are the bluest of the blue chip firms.
The company’s largest customer is Samsung… the world’s largest memory
chip maker. And their second largest customer is Intel… the
world’s largest maker of microprocessors.
In fact, the outlook for all of 2010 is very good.
Analysts are forecasting revenue growth of 109% to over $160 million.
And they’re expecting the company to return to profitability with
earnings of $1.18 per share.
Despite this bullish outlook, the shares are misvalued.
At a recent price of $11.37, the shares are trading at just 9.6x the
2010 estimate. That’s well below the industry average P/E of
24.4x. And it’s especially low for a company expected to grow
earnings 20% annually over the next five years.
Given the company’s higher than average growth rate, I think they
deserve a higher multiple. Using a conservative P/E of just 13x,
the shares are worth at least $16.64.
That’s upside potential of 46%!
Take a closer look at NANO for your own portfolio. If you don’t have
exposure to the chip equipment makers, you’re not too late. I see
NANO heading much higher from here.
• Precious Metals ETFs Are Jumping
Gold and Silver ETFs are rising today on increased concerns about the
U.S. economic recovery. The weekly jobless claims report shows
more people filed for unemployment claims in the last week than analysts
were expecting. The SPDR Gold Trust (GLD) is up 1.3%, the
iShares Silver Trust ETF (SLV) has climbed 1.9%, and
the Market Vectors Gold Miners ETF (GDX) is up 1.7%.
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