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In our business, there's nothing more satisfying than having a stock start to move right after we recommended it to you.
Today I want to tell you about just such a stock.
In fact, I want to do even more than that.
I also want to tell you about a second profit play – a tech stock – that we believe could embark upon a major move of its own. And we think that move will start no later than June 23.
So let's spend some time talking about each one.
Rent to Own
Trulia's shares – which closed at $34.61 that day – have been on the move of late. They were up more than 4% in late-afternoon trading on Friday, meaning they've gained more than 12% in just a month.
That's a nice return – especially for a tech stock in this market. We believe there's more to come. Indeed, a technical analysis report that I read Friday said Trulia is poised for a "breakout."
The report, penned Friday by a "technician," said Trulia's shares have been locked in a narrow trading range for the past few months. But here's the part that caught my attention …
"Over that period of time the stock had formed a somewhat clear resistance level at $36," the analyst wrote. "In addition, TRLA had also created a strong level of support near $29. At some point the stock had to break one of those two levels … and yesterday the stock broke resistance. The stock should now be making a run at the prior $40 level."
As you folks know, "breaking support" generally means a stock is headed lower. But "breaking resistance" implies a run to higher ground – and perhaps to new highs.
In the last 52 weeks, Trulia has traded in a range between $26.35 and $52.71. A run into the 40s or higher would make for a nice gain on this stock.
Founded in 2005, Trulia provides software "tools" professionals and consumers can use to research homes and neighborhoods. The company, through those tools, also makes it possible for real-estate agents to market their listings.
We like the fact that the company has been making some moves of late.
For instance, Trulia last year bought out industry rival Market Leader Inc., creating an online venture that was said to have the largest premium subscriber base in the online real estate industry. The combined venture was billed as having "unprecedented, end-to-end marketing solutions for real-estate professionals – as well as an industry-leading 50,000 premium subscribers.
Then, last month, Trulia signed a direct data license with My Florida Regional MLS (multiple-listing service). According to the latest reports, the deal will allow brokers to directly syndicate their listings to the Trulia service. My Florida Regional is a Top Five U.S. MLS, powering more than 100,000 listings.
"By entering into a direct license agreement, MFRMLS is ensuring the integrity of their brokers' listings and creating transparency with Trulia," Alon Chaver, Trulia's vice president of industry services, told reporters. "Brokers choosing to send their listings direct to Trulia no longer need to worry about having to update information and can focus on engaging consumers and supporting their agents in converting consumer inquiries into closed transactions."
As we said in our earlier report, Trulia is a company that's experiencing strong revenue growth and expanding profit margins – and good cash flow from operations. In its latest report, the company said revenue soared 142% on a year-over-year basis – a showing that far eclipsed the industry average of less than 12%. Trulia's net operating cash flow rocketed 144% to $4.39 million, more than six times its peer-company average of 22%.
Some high-powered investors are taking note.
In a late-March filing with the U.S. Securities and Exchange Commission (SEC), Morgan Stanley Inc. (NYSE: MS) reported taking a 5.2% stake in Trulia during the first quarter. The 1.94 million shares it held as of March 31 represented an increase of 6,973% from the 27,438 shares it held on Dec. 31.
We'll keep watching – because it looks to us like this stock is making its move.
And that brings us to our second recommendation – a stock that we believe is just getting ready to move.
We're talking about semiconductor-equipment player Applied Materials Inc. (Nasdaq-GS: AMAT).
It's a stock that could start making its move by June 23.
I've always liked Applied Materials, and have been following the company since early in my business journalism career. It's the 800-pound gorilla in the chipmaking-equipment sector. Yet lately it's turned into a slumbering giant, of sorts.
But now there are several catalysts that will bolster the company's fortunes – and jump-start the stock.
"Bill, with 45 years' of experience in the field, the Santa Clara, Calif.-based AMAT has risen through the industry's booms and busts – and endured a few of its own making," said Radical Technology Profits Editor Michael Robinson. "Despite being a leader, the company has been surprisingly slow to benefit from the semiconductor boom we've been watching unfold over the last few years – and that you, Bill, in fact, predicted. But that's quickly changing – a fact that should serve as a timely catalyst for investors moving into the stock now. Besides getting a boost from the escalating demand for semiconductor sales in general, Applied is benefiting from a huge increase in customer interest for its chip-making equipment. I just like where this whole story is going."
The Private Briefing projection that the chip sector was going to get hot has paid off in a big way for subscribers.
And we're not finished.
The boom we predicted for you has come to pass. And there's more growth to come.
The Semiconductor Industry Association (SIA) said worldwide sales of semiconductors reached $78.47 billion during the first quarter of 2014 – the highest-ever total for the first three months of a year.
This really isn't a surprise, since semiconductors have become central elements of almost every device we use. You'll find them in LEDs, smartphones, Wi-Fi routers, tablets, gaming consoles, digital camcorders, and new cars and trucks.
And when chip sales zoom, chip-making companies start investing in new equipment.
In fact, that's already happening.
SEMI, the trade group representing the producers of chip-manufacturing gear, says equipment-makers signed $1.28 billion in orders in March, for a book-to-bill ratio of 1.06. That represents a year-over-year increase of 16.1%.
To get its better-than-fair-share of all this growth, however, the leaders at Applied Materials knew change was needed.
And change starts at the top.
That's why, back in August, the AMAT board named Gary E. Dickerson as CEO. Dickerson previously served as CEO of Varian Semiconductor Equipment Associates Inc., which Applied picked up in 2011.
"Dickerson has a deep background in tech, including 30 years in semiconductors," Michael said. "Before joining Varian in 2004, he spent 18 years at KLA-Tencor Corp. (NasdaqGS: KLAC), which performs quality inspections for chip firms. He started at the Delco Electronics Division at General Motors Co. (NYSE: GM) and also served at AT&T Inc. (NYSE: T). And let me tell you … he wasted no time setting AMAT up for growth."
In fact, that's where the June 23 deadline reference comes into play.
We gave you such an ultra-specific date because that's when AMAT has scheduled the special shareholders' meeting intended to finalize its proposed merger with Tokyo Electron Ltd. (OTC: TOELY). It's a stock-transaction worth an estimated $9.39 billion. And we see this deal as one of the potential catalysts for big AMAT profits to come.
"I see this as a critical marriage that will be of enormous benefit to Applied Materials," Michael told me. "The linkup removes a competitor. And it gives AMAT more negotiating power with clients, a process that should help improve profit margins. Both companies said the deal will result in positive cash flow in the first full fiscal year the two are combined. And Dickerson, the new CEO, played a crucial role."
Indeed, because Dickerson has been friends with Tokyo Electron CEO Tetsuro Higashi for 30 years, the rough spots that often bog down such big "combinations" probably can be avoided.
An official merger approval isn't the only reason we think the shareholders' meeting could serve as a jumping-off spot for a major AMAT rally.
The company has already said it will buy back roughly $3 billion in stock within a year of the merger's completion. The meeting should give us a better picture of that.
And we also believe that Dickerson & Co. will outline some of AMAT's additional growth initiatives at that time.
"We're already seeing positive results," Michael told me when we talked late last week. "I mean, AMAT reported blowout numbers when it announced its results for the fiscal second quarter ended April 27. Net sales came in at $2.35 billion, up 19% from the year-ago period, as operating income soared 69% to $482 million. Non-GAAP earnings per share (EPS) came in at 28 cents – a jump of 75% on a year-over-year basis."
Michael sees a hefty potential upside here.
Applied Materials is trading at about $20 a share right now, giving the company a pre-merger market value of $24 billion. It trades at roughly 15 times forward earnings, about a 20% discount from the Nasdaq 100's forward Price/Earnings (P/E) ratio.
"If the company can maintain just one-thirdof its recent profit-growth rate of 75%, earnings would double in less than three years – and the stock would do the same," Michael said.
Make no mistake: Applied Materials has been a sleepwalking giant. But that somnambulant era has come to an end. With new management, the Tokyo Electron merger, and a renewed commitment to innovation, we see Applied Materials as a very special "special-situation" profit play – one that could easily allow you to double your money.
And June 23 could prove to be just the starting point for a very big gain.
Have a great week.
[Editor's Note: Unless otherwise specified, we recommend investors employ a 25% "trailing stop" on all holdings.]