Investors are looking past COVID-19 and expecting the rebound in the economy to continue. And today I have a new recommendation for you: Teradyne, Inc. (TER), explains Mark Skousen, editor of Five Star Trader.
Based in North Reading, Massachusetts, Teradyne is a major supplier to semiconductor equipment manufacturers. In particular, it automates two of the manufacturer’s most critical elements: repetitive manual tasks and electronic tests.
Virtually every electronic device you use has been enhanced by Teradyne during its assembly or testing. The firm helps hundreds of manufacturers deliver the highest-quality products as quickly and as economically as possible.
Its industrial automation solutions -- including collaborative robots (or “cobots”) -- automate jobs, deliver faster returns on investment and free workers to focus on jobs that require human input. Its automated test equipment speeds up time-to-market for new electronics, where reliability and functionality are paramount.
In addition to expanding organically, Teradyne is growing through mergers and acquisitions. Last year, for instance, Teradyne announced a $165 million deal to buy AutoGuide, a maker of mobile robots that can autonomously transport material payloads of up to 10,000 pounds. Teradyne is seeing particularly strong sales of test equipment related to the 5G wireless transition.
But unlike most chip equipment suppliers, the firm has a diversified business model. So, a slowdown in one industry -- like semiconductors -- doesn’t impact the entire business. That much was clear in Teradyne’s recent quarterly numbers. Its earnings soared 61% on a 43% increase in sales.
The company enjoys a 25% operating margin. And management is earning a massive 35% return on equity. The firm also has a solid balance sheet for a $13.2 billion company, with only $464 million in debt and $804 million in cash on hand.
Looking ahead, I estimate that earnings will rise from $3 a share this year to nearly $4 in 2021. That should cause the stock to continue its outperformance. The shares are up 88% over the last 52 weeks. So, pick up Teradyne at market. And place a sell stop at $72 for protection.