There's A Treasure Hidden In Your TV...
The Dynamic Wealth Report
September 17, 2010
by Robert Morris, Editor
Thinking about buying a new liquid crystal display (LCD)
television set but worried about the price? Don’t be. I’m going to let
you in on a little secret. If you crack open certain LCD TVs, you’ll find
a veritable treasure trove inside.
I’m talking rare stones like sapphires and rubies…
Well, maybe not precious gems exactly. But, it’s true you’ll find
sapphires and rubies in there. Just not the kind you’d buy your wife or
girlfriend for her birthday. (So don’t open up your TV!)
Let me explain.
A major transition is happening in the TV business. Manufacturers are
moving away from using cold cathode fluorescent lamps (CCFL) to
backlight LCD TVs. Instead, they’re using light emitting diodes or LED.
LED offers several advantages over CCFL…
Improved brightness and contrast with deeper blacks. Lower power
consumption (up to 40% less). Better color saturation and accuracy.
Longer lasting TV sets (100,000 hours). And thinner TV designs.
Here’s the key…
LED TVs are powered by a special kind of semiconductor. While most
semiconductors are fabricated on silicon substrates, LED TVs use chips
made on sapphire substrates. (Substrate is just a fancy way of
describing the physical material on which an integrated circuit is
applied.)
Yes, the chips powering LED TVs use actual sapphires… just like the ones
you’d find in your local jewelry store. The difference is these
sapphires aren’t dug up from the ground. They’re actually grown in a
controlled environment.
What’s so great about sapphire?
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Sapphire is better than bulk silicon for many reasons. I’m not going to
bore you with all the scientific details. All you need to know is
sapphire is responsible for the many advantages LED has over CFFL.
What’s more, consumers are seeing the LED advantage and opening up their
wallets.
In the second quarter, sales of LED TVs surged. Of the 9.5 million LCD
TVs shipped worldwide, 18.5% of them were LEDs. That’s up from just 8%
in the first quarter.
And that’s just the beginning…
LED panel makers are targeting 40% LED penetration in the fourth
quarter. And they expect LED penetration to jump to 50% by the second
quarter of 2011.
Rapidly falling LED prices are helping growth accelerate.
After a shortage of LEDs in the second quarter, panel makers have
boosted production. Greater supply is helping drive prices down. In
fact, LED prices are falling even faster than CCFL prices.
Lower prices bode well for the fast approaching holiday season. With
consumer demand for LED surging and prices dropping,
LED TV sales should
skyrocket in the fourth quarter.
This is great news for one particular company… Rubicon Technology
(RBCN).
Rubicon is a leading provider of sapphire substrates for LEDs. Using
proprietary technology, Rubicon produces best-in-class sapphire crystal
wafers.
The high purity of Rubicon’s sapphire crystals enables customers to
realize high yields in their processing. And, Rubicon’s high volume and
flexible manufacturing capability enables them to be cost competitive.
The company’s sapphire substrates are used in a variety of LED
applications. You already know about LED TVs. However, you may not know
sapphire substrates are also used in color displays for mobile phones,
vehicle lights, large commercial signs, and jumbo screens.
But, the fastest growing LED market is general illumination. LEDs are
quickly becoming the light source of choice for replacement lamps,
architectural lighting, retail displays, commercial lights, residential
lighting, and street lights.
And Rubicon is riding this technological transition for all its worth.
Just look at their second quarter numbers…
Revenue surged a whopping 393% year over year to a record $15.8 million. Net income increased from a loss of $2.9 million to a profit of $3.9
million. And earnings rose from a loss of $0.15 to a gain of $0.18 per
share… beating analysts’ estimates by 29% in the process.
A fantastic quarter any way you slice it.
Strong demand from the LED market and a 16% increase in sapphire
substrate prices is driving robust growth.
What’s more, Rubicon’s growth is accelerating.
Second quarter revenue eclipsed the first quarter’s by 37%. Gross profit
margins increased from 36% to 46%. And earnings expanded by an amazing
157%.
Best of all, management’s outlook for the third quarter is even better.
The company’s CFO recently said, “We see an even stronger pricing
environment in the third quarter and expect our substrate prices to
increase at least 20 percent on average sequentially.”
As a result, management’s expecting revenue to jump 23% from the second
quarter to $19.5 million. And they’re forecasting a 56% rise in earnings
to $0.28 per share.
No doubt about it… Rubicon shares are heading higher.
At a recent price of $23.94, the shares are trading at 26x the 2010
earnings estimate of $0.92 per share. Applying that same P/E to the 2011
estimate of $1.77, you get a share price of $46.02.
That’s eye-popping upside potential of 92%.
Grab your shares of Rubicon now. Rapid expansion of the LED market is
certain to drive strong growth at the company over the next year.
• Oshkosh (OSK) was upgraded
from Neutral to Outperform by Robert W. Baird. With the stock down 30%
year-to-date, Baird believes OSK is already pricing in weaker defense
spending. Baird set a price target of $42 for the shares.
• Davenport downgraded Arena Pharmaceuticals
(ARNA) from Buy to Neutral. The shares are plunging after an FDA
advisory panel rejected the company’s weight loss pill. The FDA will
decide the drug’s fate on October 22nd.
• RBC Capital Markets initiated coverage on Allergan
(AGN) with an Outperform rating. The shares are expected to move higher
now that the Justice Department’s investigation into the company’s Botox
marketing practices has been settled.
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