Back on Jan. 4, we told you the semiconductor sector was in for a heck of a run.
Just days later – on Jan. 7, to be precise – resident tech expert Michael A. Robinson urged investors to take a careful look at microprocessor players ARM Holdings PLC (Nasdaq ADR: ARMH)and Advanced Micro Devices Inc. (NYSE: AMD).
In fact, Michael, editor of the Radical Technology Profits advisory service, glimpsed such allure in AMD's "turnaround" potential that he described the stock as "a bottom-feeder's dream."
As it turns out, we were right on target with our semiconductor sector call. And Michael cut a dead-center bulls-eye with his ARM and AMD recommendations.
AMD shares jumped 11% on Wednesday and as much as 4% yesterday after the Sunnyvale, Calif.-based company reported a much-smaller-than-expected loss for its fiscal fourth quarter. After arch-rival Intel Corp. (Nasdaq:INTC) had reported a lackluster quarter, investors feared AMD would be even worse, and dumped the shares. But Michael predicted the company would demonstrate progress with cost reductions – and with initiatives that help it move into new growth areas at a time when PC sales are slowing. AMD's latest results are evidence that the company is making progress on both counts, experts said this week.
Since Michael made his recommendations just two weeks ago, ARM shares are up 6.5% while AMD shares have advanced 5.5%.>
Some of our earlier semiconductor picks are also doing well, and are still worth a look. For instance:
- LSI Corp. (Nasdaq: LSI), recommended back on June 7, is up more than 14%, and continues to have a great long-term outlook. The Milpitas, Calif.-based firm yesterday posted fourth-quarter results that beat estimates, but the stock declined more than 2% because worries about the economy and about the PC market prompted management to be cautious about the current quarter. But as we outlined in our original report, LSI's leaders are focusing on growth markets (both product and geographic). The company is gaining market share. And it's buying back stock. With an upside near $8.50, representing an additional possible gain of 16%, LSI remains a long-term "Buy."
- NXP Semiconductors NV (Nasdaq: NXPI), recommended back on May 14, is up more than 26%, and boasts a growing presence in a burgeoning semiconductor market – for so-called "near-field communications" chips.When it reported its third-quarter earnings in late October, NXP's profits beat estimates by nearly 30% – the third straight quarter with an earnings surprise. It next reports on Jan. 30. Although the semiconductor market is expected to be strong this year, NXP has said it expects to do even better. The "near-field communications" (NFC) chips allow data to be shared between devices without plugs or even actual contact; it's enough for the devices to be in close proximity. This opens the door for "quick-pass" transactions – essential to the increased use of "mobile-wallet" transaction technology. Given NXP's growth potential (and projected growth rate of 22%), the stock remains cheap: Its current Price/Earnings (P/E) ratio of 11.9 and a "PEG" ratio of just 0.5, are each well below the company's peer-group average of 16.9 and 0.96, respectively, according to Zacks Investment Research. NXP remains a "Buy," and could trade into the $40 range (for an additional 35% gain) before its latest growth leg ends.
- Kulicke and Soffa Industries Inc. (Nasdaq: KLIC), recommended back on March 16, is up 5% since then. But this company is very strong fundamentally, has $440 million in cash and no debt, and we believe there are greater gains to come. Kulicke holds the No. 1 position in many of its product markets, including the so-called "wire-bonded" market, where it has an estimated market share of 70%. The company recently projected that 83% of all integrated circuits would be wire-bonded in 2016 – a projection, if true, that bodes very well for revenue. The consensus target price is $15, which would represent a 26% gain from where we recommended it. KLIC remains a "Buy."
An update on Molycorp Inc. (NYSE: MCP): It's tough not to become so thoroughly frustrated with this company that you throw in the towel. Every week, it seems, more bad news hits the headlines.
Just this week, for instance, Molycorp said it had to raise capital and lowered its forward guidance.
Here's the thing: None of this is a surprise. As we've been saying for months now, you can expect more bad news before Molycorp's fortunes turn. In fact, most of the bad news we continue to see is the result of problems we already knew about. They are the same problems that induced Molycorp's board to oust the company's CEO. These "bad news" revelations are likely the result of the business reviews being undertaken by the current CEO – who is being candid with investors in a way that his predecessor obviously wasn't.
The company announced plans to offer $200 million of common stock and $100 million of senior convertible notes. As part of that announcement, Molycorp also warned that its first-half production was likely to be substantially lower than had been seen – meaning cash flows would also be down from earlier projections.
Laurence Balter, an analyst at Oracle Investment Research, which has been bullish on Molycorp, remained bullish even after Wednesday's disclosures.
"They are raising less than I thought," Balter told journalists. "Investors need to be patient."
The stock is now down about 22% from where Permanent Wealth Investor Editor Martin Hutchinson recommended it – a hefty swing from the peak gain of 50% we had shortly after he made his call on the stock.
Our philosophical approach to Molycorp really hasn't changed, but still bears repeating here.
We continue to view the company as a turnaround play – but one with real value. So anyone who wants to pursue a profit in this stock has to give the company time to work through its makeover – and has to have the fortitude to ride out the whipsaw trading that accompanies a stock that's four times as volatile as the general market.
As Martin said back on Jan. 11: "The disclosure issues and some of the other problems this company has faced clearly has made Molycorp's management team appear to be utterly inept – which we're already very aware of. If that's your view of management, it would be foolish to buy more. On the other hand, Molycorp's strategic position remains very strong. China is further restricting rare-earth exports, and the bloody [Mountain Pass] mine is actually producing – it just needs to ramp up. So it would definitely be foolish to sell, since the chances are that even this management team can't screw it up much more."
But what if you want to buy to do some "bottom-fishing" with Molycorp? Before making a move like that, you need to be sure you have a true "contrarian" mindset, says Chief Investment Strategist Keith Fitz-Gerald. Effective contrarians see something that the rest of the market doesn't see yet – whether it's a higher stock price, a particular economic condition or even a surge in earnings.
This type of investor is able to "see" these long-term possibilities. Whatever happens in the near-term is pretty much just "noise." The contrarian can filter out this noise, and has the willingness and confidence to take a position and hold it (while using conventional risk measures, like trailing stops).
"BP, an investor who wants to buy Molycorp at this point needs to ask him or herself a couple of tough questions," Keith told me. "First, do you believe in the long-term fundamentals of the industry and the company? And if you do, can you cast your lot with the day traders and just accept the fact that additional volatility is going to be a basic part of the game with this stock going forward? If you can answer 'Yes,' to both those questions, then this is probably an investment that you're suited to make."
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]