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
There are six chip stocks that look great today. All are U.S. companies, all enjoy growing sales and earnings now, and all expect continued growth in the year ahead.
NetLogic Microsystems (NETL) of Mountain View, California, designs chips used to accelerate the processing and delivery of content on both wired and wireless systems. Cisco and its contract manufacturers account for 38% of revenues, while Juniper, Alcatel, Lucent and Motorola account for another 30%. The company has grown revenues every year of the past decade and it's grown earnings every year (impressive!) since 2005. NetLogic stayed solidly profitable through 2008 and 2009, with earnings off just 24% in its weakest quarter. In the latest quarter, revenues rocketed 125% to $69.5 million, while earnings jumped 90% to $0.59 per share. After-tax profit margin was 25.1%. Technically, NETL is powerful, consolidating just above 55.
The other five good looking chip stocks are Atheros Communications (ATHR), Cree Inc. (CREE), 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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Cabot Stock of the Month
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 3/1/10 Sign up for free Cabot Wealth Advisory e-newsletter
What I like today are stocks of fast-growing technology companies like NetLogic Microsystems (NETL), which earned a spot in Cabot Top Ten Weekly a few weeks ago. NetLogic falls into the classic semiconductor chip category, which to me means that in the right bull market it can make you money really fast ... and that when the uptrend ends you've got to jump out.
Well, the company had a blowout fourth quarter earnings report—sales up 125% to $70 million and earnings up 90% to $0.59 per share—after which investors gapped the stock up to new highs on big volume. And that earned it an appearance in Cabot Top Ten Weekly, where editor Michael Cintolo wrote, "NETL hit 45 back in the first half of 2006, and didn't make meaningful progress above that level until recently. So the stock has a very long launching pad to work from, which makes last week's earnings-induced rally more promising. NETL trades just 500,000 shares per day on average, so volatility can be extreme, but we like the prospects and the stock's more recent four-month rest period. Try to buy a little on weakness or as the stock tightens up."
When he wrote that, the stock was trading at 48, and the stock traded at 48 for the next three days, "tightening up," which tells you institutions are accumulating. And then it launched ahead, in a climb that took it up to 57 today. I still think the future is bright, but if you like it try to buy on a normal correction of a couple points.
Editor's Note: Discover the strongest stocks in the market with Cabot Top Ten Weekly! Editor Michael Cintolo combines our proprietary Optimum Momentum stock-screening tool with his expert growth stock advice to select the top 10 stocks in the market each and every week. A new issue came out today—don't miss it! Click here for more information.