A Logical Insight

04/14/2006 12:00 am EST

Focus:

Jim Collins

Chairman and CEO, Insight Capital Research & Management, Inc.

Among the newsletters tracked by the Hulbert Financial Digest for 15 years, OTC Insight from Jim Collins ranks as the number five best performer, a significant feat, particularly in the high-growth sector in which he focuses. Here’s his latest.

"The good news is that the Fed is convinced that economy is on solid footing. Currently estimates are calling for the S&P 500 to expand earnings by 10.8% in 2006. This is quite good by historical standards. And our stocks are expected to increase earnings by a substantially higher rate. What this means for investors is that 2006 should be decent as long as valuations do not drop which is unlikely to happen, as valuations are near their ten-year lows.

"The bad news regarding the Fed is that there is likely to be at least one more interest rate increase. And the threat of further increases will temporarily impede stocks valuations from expanding much beyond their current level. Once the Fed has indicated that it will step to the side, valuations have the potential to increase moderately. In the meantime, the movement in individual stock prices will generally follow the underlying company’s earnings.

"Our latest featured analysts review is NetLogic MicroSystems (NETL NASDAQ). The company is a fables semiconductor company that designs, develops, and markets knowledge-based processors for advanced Internet, corporate, and other networking systems for products such as routers, switches, network security appliances, access equipment, and network storage devices.

"The processors enable original equipment manufacturers to supply network service providers with systems offering functionality for the Internet, threat management, virtual private networks, and streaming video and audio. In March, the company announced the launch of its newest, second generation Netlite processor, designed for cost-sensitive, high-volume applications.

"For the quarter ended December 2005, NetLogic reported earnings of $0.27 per share, which was $0.22 more than the fourth quarter in the previous year. Earnings exceeded the consensus estimated by $.05. Revenues increased 40% to $21 million. The stock is trading near its 52-week high, with a float of 11.2 million shares. The company receives an A+ rating for accumulation and distribution, and has a relative strength rating of 98 out of 100."

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