By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 4/5/10 Sign up for free Cabot Wealth Advisory e-newsletter
I want to start by reviewing my column of March 8, four weeks ago. On that day, the title of my Cabot Wealth Advisory was "Six Hot Chip Stocks for the Spring Bull Market." In the article, I told you why chip stocks were a good bet at this point in the market cycle, and I highlighted six that were attractive at the time.
They were Atheros Communications (ATHR), Cree (CREE), NetLogic Microsystems (NETL), Power Integrations (POWI), Skyworks Solutions (SKYW) and Volterra Semiconductor (VLTR).
And how have they done since?
Very well, up an average of 7.9%, while the S&P 500 is up 4.2%.
And on March 22, I mentioned CREE again, saying it "looked terrific."
Well, I hope you listened because today CREE vaulted more than 8%, breaking out of a beautiful tight base (the kind Cabot Market Letter editor Michael Cintolo loves) at 70 and pushing close to 77.
The "news" that sparked this move was an analyst upgrade. But the stock would never have made the move if it didn't already have so many of the qualities we look for, including strong sales and earnings growth, huge mass markets, great institutional sponsorship and a tight chart pattern. I touched on many of these qualities a month ago, when I wrote this:
"Cree (CREE) is a leading manufacturer of LEDs (light-emitting diodes). These are the lights that will eventually take over from incandescent and compact fluorescent lights because they are far more efficient and last far longer. The company has grown revenues every year of the past decade but one (2007) and it maintained profitability throughout 2008 and 2009. In the latest quarter, revenues grew 35% to $200 million, while earnings jumped 90% to $0.38 per share. After-tax profit margin was 20.1%."
All that still applies. The only difference is that CREE has just completed a textbook one-month base. With this new breakout, the uptrend is alive and well ... and there's more upside ahead.
To get regular current advice on the stock, I recommend a subscription to Cabot Market Letter, edited by Michael Cintolo. Mike recommended the stock to his readers back on March 10, when it was trading at 70.
And if you'd like to get the full story, (including advice on when to sell and take your profit) you can get it by taking a no-risk trial subscription to Cabot Market Letter. Simply click here.
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 3/8/10 Sign up for free Cabot Wealth Advisory e-newsletter
Cree Inc. (CREE) of Durham, North Carolina, is a leading manufacturer of LEDs (light-emitting diodes). These are the lights that will eventually take over from incandescent and compact fluorescent lights because they are far more energy efficient, last far longer and don't contain mercury. The company has grown revenues every year of the past decade but one (2007) and it maintained profitability throughout 2008 and 2009. In the latest quarter, revenues grew 35% to $200 million, while earnings jumped 90% to $0.38 per share. After-tax profit margin was 20.1%. Technically, CREE is very strong, consolidating its latest climb just under 70.
The other five good looking chip stocks are Atheros Communications (ATHR), NetLogic Microsystems (NETL), Power Integrations (POWI), Skyworks Solutions (SWKS) and Volterra Semiconductor (VLTR).
Of the six, my favorites are Atheros, Cree and NetLogic, because of a combination of fundamental and technical factors.
But I know that less experienced investors will be attracted to Skyworks and Volterra, because their stocks are lower-priced. Trouble is, those lower prices bring greater risk. Whatever you choose, be sure you manage risk appropriately, by buying on dips, and by keeping losses small.
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By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 2/5/10 Sign up for free Cabot Wealth Advisory e-newsletter
Today my thoughts turn to light bulbs.
Of course, they're not all bulbs anymore, but we'll probably keep calling them that, just as we still "dial" and "hang up" the telephone.
This weekend I was changing a bulb at home; I replaced a traditional 60-watt incandescent bulb in a ceiling dome with a curly compact fluorescent light (CFL). But as I was screwing the dome back into place, the CFL, being wider at the end than the previous bulb, was squeezed by the dome and broke.
Remembering the warnings about mercury, I held my breath, opened a window and walked away, heading to Google to learn what to do next.
Among the things I learned are these:
The amount of mercury in a CFL is small (perhaps 4 mg); there's far more in watch batteries and those shoes that light up as you walk. In an ideal world, all those items would be treated as hazardous waste. Normally, however, they end up in the regular trash stream ... which is where I put mine after I cleaned up, being careful not to use a vacuum cleaner, which would spread the mercury further.
Then I put in a regular incandescent bulb.
Now, part of me appreciates these CFLs. After all they save money, by using 75% less energy than incandescents and lasting perhaps 10 times longer. And they're less bad for the environment too, regardless of where I dispose of my used CFLs. The amount of mercury contained in a CFL ends up being less than half the amount that would be released into the atmosphere from a coal-fired power plant to keep an incandescent bulb lit over the life span of a standard CFL.
Nevertheless, I'm reminded of something I read when the government passed laws dictating the phase-out of incandescent lights. You may remember that there were virtually no complaints from manufacturers. In fact, their lobbyists helped draft the laws! And why? Because the new CFL lights are more profitable.
What I'm really waiting for are light-emitting diodes (LEDs), which use semiconductor technology to create light using substantially less energy ... which means less wasted heat.
At the moment, these lights are still not cost-effective for homeowners, although if you really want to avoid the mercury risk you might justify it. But efficiencies are improving fast. Just as Moore's Law illustrated the progress of semiconductor processing chips for decades, today Haitz's Law (after Dr. Roland Haitz) illustrates the progress of LED technology. Since the 1960s, efficiency has doubled approximately every 36 months.
One of the leaders in the industry is Cree. Inc. (CREE), a Durham, North Carolina company that's thriving by serving the industrial market.
Cree earned four appearances in Cabot Top Ten Report last year. Here's part of what the last report said, on November 11.
"Cree Inc. is a leader in the production of light emitting diodes (LEDs) ... LEDs have been popular for years in laptops and cell phones, but as the demand for electricity rises and the efficiency of LEDs soars, their applications are expanding, especially for outdoor lighting. For instance, Cree is supplying Anchorage, Alaska, with 16,000 LEDs. With 80% of the firm's revenues coming from outside the U.S., there's a good chance countries like China, which already makes up a big chunk of business, could replace millions of bulbs in the years ahead. Revenue growth is accelerating and the recent earnings release just topped estimates. We like it."
Back then, CREE was trading at 42. Today it's 61. And it still looks good.
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By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 1/4/10 Sign up for free Cabot Wealth Advisory e-newsletter
The start of a new year means a lot of investors are ready to jump into something new, something with great profit potential. For me, this means younger, smaller companies that are not just faster-growing but also relatively unknown; as they become better-known, they attract more buyers, and the combination of improving fundamentals and improving perceptions makes for a one-two punch that can send a stock soaring.
One of my favorites for this year is Cree Inc. (CREE), which is in the business of making light-emitting diodes (LEDs).
Cree has great numbers now; in the latest quarter, its revenues hit $169 million, up 20% from the year before, and it earned 30 cents per share, up 100% from the year before. Even better, analysts are projecting that the company will earn $1.17 in 2010.
Looking beyond that, I'm very excited about the fact that beginning in 2012, a federal government law will mandate that incandescent light bulbs be replaced by more efficient devices, typically compact fluorescents (CFLs) or LEDs. There's no question this law will spell big growth for Cree; the only question is how big.
I recommended Cree here on November 4 when its stock was trading at 43.
I recommended it on December 7, when it was trading at 51.
And I'm recommending it again today, as it trades at 57.
And as usual with growth stocks, I have no upside target; the sky's the limit.
A look at the long-term chart tells me there's resistance at 101, which is where the stock topped out at the end of the 1999 bull market in technology stocks. But that's so far back it's not likely to have much effect today; most of the people who owned the stock then have likely sold, taken their losses, and moved on.
You, of course, if you buy it here, should expect profits. If they come, let them grow. And when the trend stops, sell. That's the golden rule of growth investing.
Editor's Note: Cree, Inc. (CREE) was recently featured in Cabot Market Letter, our flagship publication. If you want to get the top growth stock picks in the market, like CREE, you should check out Cabot Market Letter. The Letter is top-ranked for both one-year and long-term market timing because it follows a finely tuned system that has been perfected during the last 39 years. Click here to find out more.
By Brendan Coffey, Editor of Cabot Green Investor
From Cabot Wealth Advisory 12/24/09
By one estimate, lighting in the U.S. commands 22% of electricity usage.
Shifting to CFL bulbs helps, since they are three times more energy efficient than incandescent bulbs. But because they use mercury, which has dire consequences on wildlife, CFLs are seen as simply a stop-gap measure until the next wave of lighting matures.
This next generation technology is LED, or light-emitting diode. Like the name suggests, LEDs aren't bulbs like we think of them, but a collection of small silicon chips-like instruments that emit a certain color of light. They use so little electricity that when Prince Charles of England switched Buckingham Palace's exterior lighting to LEDs, illuminating the palace at night takes as much energy as one of the electric teakettles that are so common in his country.
LEDs have the added bonus that they rarely need to be changed--the expected lifespan is 20 years. That holds great appeal to municipalities, who spend a lot of money on streetlight and parking garage electricity and maintenance. Los Angeles is retrofitting 140,000 streetlights with LEDs for just these reasons. San Jose, Anchorage and many other cities are performing smaller retrofits with their federal stimulus funds.
Corporations see the benefits, too. Walmart recently installed LED lighting in 638 of its stores' electronics departments and has found an 82% reduction in electricity costs in those departments as a result. It may roll out LED usage chain-wide.
A North Carolina McDonald's restaurant installed LEDs throughout its location and found a 78% drop in electricity costs. Other quick-serve restaurant locations from Yum Brands and Friendly's have found similar savings.
But such cost efficiency and lifespan comes at a cost. LED retrofit lights can costs hundreds of dollars each, compared to a dollar or so for a traditional incandescent bulb.
Still, costs are destined to come down and it's cheaper to install LEDs in new construction. Today, LEDs are still just 1% of the $120 billion worldwide lighting market. Because of their inherent advantages, one major LED manufacturer, Philips, predicts the LED market will grow 1,000% in the next 10 years. My stock pick isn't Philips, but a North Carolina-based competitor we detailed to Cabot Green Investor subscribers this month, Cree Inc. (CREE).
Half of Cree's $597 million in 2009 sales (which generated 34 cents a share net earnings) came from municipal and residential LED products. This is an area largely ignored by many LED makers who prefer to sell to cell phone and laptop makers, which Cree also does.
In addition to supplying LEDs to Walmart's conversion, the company recently bought a major Chinese LED manufacturer, which is accelerating sales in China and also providing a lower-cost manufacturing base. By one estimate, the achievable LED market in China would provide energy savings equal to the power generated by the Three Gorges hydroelectric dam project.
Trading at 52 a share, Cree is pricey at 100 times trailing earnings. Still, history tells us the best growth stocks are often expensive. Wait for shares to back off a few dollars into the high 40s before buying.
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Brendan Coffey
Analyst and Editor of Cabot Green Investor Brendan Coffey is a member of the Cabot investment team and editor of
Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron's, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.
By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 12/7/09 Sign up for free Cabot Wealth Advisory e-newsletter
Today's investment idea is all about lighting. No, it's not those curly compact fluorescents that are filled with mercury and require you to evacuate the room if you break one. The main reason we've got those today is that the energy savings sounded good to the folks in Washington and the profits sounded good to the manufacturers.
No, my idea is about the NEXT stage of the lighting revolution, the era of Light Emitting Diodes (LEDs), which are basically silicon chips.
The leader in the industry is Cree (CREE), of Durham, North Carolina, the market leader in the industry. Though its products still cost substantially more than incandescent bulbs or compact fluorescents, prices are coming down fast as commercial success in niche markets like aviation and automotive enable more research and result in greater technological progress.
The stock has earned an appearance in Cabot Top Ten Report four times this year (while trading at 24, 27, 37 and 420, and last Wednesday, Cabot Market Letter editor Michael Cintolo had this to say about the stock.
"The kinds of stories that feature Cree tend to be pretty dry. On Tuesday, the company announced that it had squeezed 186 lumens per watt out of one of its high-power LEDs (light emitting diodes). It's a little more dramatic when you know that a standard incandescent bulb yields about 13.8 lumens per watt and a standard fluorescent only hits a maximum 72 lumens. Watts cost money, and Cree is pushing LEDs into uncharted territory; LEDs could be just starting a huge growth wave as cities in the U.S. and elsewhere look to save on energy costs. We featured Cree here on November 4 when its stock was trading at 43. Now, after spending two weeks under resistance at 48, CREE has broken out to near 50. We like it. BUY."
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By Michael Cintolo, Vice President of Investments and Editor of Cabot Top Ten Report
From Cabot Wealth Advisory 11/12/09. Sign up for he free Cabot Wealth Advisory e-newsletter.
In today's environment, I'm looking for companies with great prospects, and with stocks that are not only strong but also liquid (they trade plenty of volume every day) and have great institutional sponsorship.
One name that's attractive is Cree Inc. (CREE). The company is technically listed as a semiconductor company, however, its claim to fame has little to do with the chip sector and its notorious booms and busts. Instead, Cree is really something of an alternative energy story-it's the leader in the production of light emitting diodes (LEDs), which are far more energy efficient than both standard bulbs and compact fluorescent lights (CFLs).
Here's what I wrote about Cree two weeks ago in Cabot Top Ten Report:
"Cree Inc. is a leader in the production of light emitting diodes (LEDs), which are the next wave in energy efficient lighting. They consume as little as 10% of the electricity that incandescent bulbs use, generate low heat, last far longer (estimates of 20 to 40 times as long) and, unlike newer compact fluorescent light bulbs, contain no mercury and require no special handling. LEDs have been popular for years in laptops and cell phones, but as the demand for electricity rises and the efficiency of LEDs soars, their applications are expanding, especially for outdoor lighting; for instance, Cree is supplying Anchorage, Alaska, with 16,000 LEDs. With 80% of the firm's revenues coming from outside the U.S., there's a good chance countries like China, which already makes up a big chunk of business, could replace millions of bulbs in the years ahead."
I like that revenue growth is starting to accelerate (up 5%, 9% and 20% the past three quarters) while earnings are booming (up 38% and 100% the past two quarters, with a 45% gain expected in the fourth quarter). And I love the fact that the story is simple and compelling-cost savings for lights makes sense, and demand for its LEDs should soar in the years ahead.
The stock popped on its earnings report on October 21, and has been bobbing and weaving with the market ever since. Right now, I think it's a bit extended to the upside, as the 50-day moving average is down around 40. But I think it's worth a shot at buying on any controlled pullback of two or three points.
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Michael Cintolo
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.