Tech Gold Rush? Buy a Shovel Maker

11/16/2010 5:18 pm EST


Jim Jubak

Founder and Editor,

I’ve been looking to buy Aixtron (Nasdaq: AIXG) on a dip to $32 or lower.

Well, today I got my price. As I’m writing this at 12:30 pm New York time, the ADRs of the maker of equipment for depositing the thin layers that make up chips, display screens, LEDs, and solar cells are selling for $31.89. The stock is down 2.4% today, November 16. That brings the total decline to 8.6% from the high of November 8.

You can thank Cisco Systems’ (Nasdaq: CSCO) disappointing guidance for part of the drop in Aixtron. Cisco’s news took down almost everything in the technology sector, whether they sold into Cisco’s markets or not. (See my post on Cisco here.)

The rest of the drop is related to fears that the euro debt situation is getting worse and worries that China will raise benchmark interest rates again (or something) to fight inflation.

Certainly there wasn’t anything to complain about in the company’s financial report October 28. The company pointed to continued healthy demand, with new orders for the third quarter climbing by 14.3% from the second quarter. Significantly, about 30% of the orders for LED systems were for the company’s newest generation of equipment launched in the first quarter of 2010. Gross margins for the first nine months of 2010 climbed to 53%, ten percentage points above the same period a year ago. Net income for the first nine months of 2010 was up 542% from the first nine months of 2009.

Aixtron and its competitor Veeco Instruments (Nasdaq: VECO) are ways to buy into the soaring demand for LEDs and solar cells and indeed for anything that requires putting down very thin layers on silicon or some other base.

In this case, I’m urging you to buy a shovel maker during a gold rush.

As of November 16, I’m adding the New-York-traded ADRs of Germany’s Aixtron to Jubak’s Picks with a target price of $39 by May 2011. (Which, of course, means that I’ll be removing it from my Watch list.)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. The fund did own shares of Aixtron and Cisco Systems as of the end of the September quarter. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio here.

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