... and Perry Picks Harmonic

04/15/2005 12:00 am EST

Focus:

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

While Toby Smith takes a longer-term view, his ChangeWave cohort, Bryan Perry, looks at similar developing trends from a trader’s perspective, often recommending positions for just the next few weeks or months. Here’s his latest "trade of the week."

"Harmonic (HLIT NASDAQ) is a leading provider of digital video, broadband optical networking, and IP delivery systems. Its customers, including many of the world's largest communications providers, deliver services in virtually every country. It is best positioned to benefit from the increasing competition between cable and satellite television operators, who are aggressively increasing bandwidth capacity in order to launch additional high-definition television (HDTV) and local channels. Harmonic makes video distribution and transport equipment -- the stuff that drives capacity on these networks, especially HDTV, where Harmonic has a strong product offering.

"The stock trades with a current p/e ratio of 19, which is a very attractive discount to its 30% growth rate for profits, and a forward p/e of only 14. With revenues and net income accelerating, I expect an expansion in valuation and believe the stock can trade with at least a 25 p/e multiple. This takes the stock to $13, which is our intermediate-term price target, for a projected return of 40%. From a technical standpoint, the stock has put in a textbook pullback off its breakout high of $12.40 back in early February. That gap move higher came off of the $7.50 level. So, it was a big move on big volume, ushering a brand-new uptrend for the stock. The most recent selling was on lighter volume, indicating that the selling is drying up. The stock trades about two million shares a day, so it's widely followed and widely traded. It should be an exciting holding for us."

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