Mellanox: Israeli Cloud Play

05/12/2015 10:00 am EST

Focus: GLOBAL

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Our latest recommendation is a combined bet on the booming specialist semiconductor sector and foreign stocks, asserts global investment expert Nicholas Vardy, editor of Triple Digit Trader.

Israel-based Mellanox Technologies, Ltd. (MLNX) makes high-speed switches, cables, and other devices to increase the efficiency of computer networks that make up the fast-growing Internet cloud.

Here’s why I expect it to jump higher in the weeks and months ahead.

First, cloud computing is booming. Both companies and individuals are increasingly storing and retrieving programs, photos, and other data on the cloud.

The most extreme case is in the tiny country of Estonia. As my visit there revealed, the entire Estonian government is moving itself in the cloud so that it can continue to operate unaffected by any invasion by Russia.

Second, this boom is reflected in the company’s growth prospects. Mellanox has one of the highest projected earnings growth rates for any stock listed on the Nasdaq, with earnings per share almost expected to double for this $2.17 billion market cap company.

Finally, the stock itself offers a solid technical set-up. The stock jumped to a new 52-week high on April 22, after a better-than-expected strong earnings report, but has pulled back since. This offers a very solid entry point in the context of an established technical uptrend.

Mellanox’s earnings and sales growth have accelerated in the past three quarters, with EPS growth topping analysts’ views by 25% in Q1.

Consensus projections expect a 97% earnings gain this year on the back of a 37% rise in sales. For all that, the stock still trades at a reasonable forward price-earnings (P/E) ratio of 18.34.

Technically, the stock has been in a flattish uptrend, rising steadily with ever-higher bases since July 2014. It currently is technically slightly oversold and just bounced off of its 50-day moving average yesterday.

According to Investor’s Business Daily, the stock’s relative strength is now hitting new highs. And its Accumulation/Distribution Rating has risen to A+, indicating strong demand for the shares, which should help drive the share price up. Buy at market today and place a stop at $41.50.

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