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A "Value" View of Veeco
09/30/2005 12:00 am EST
"Chasing technology is clearly not our style," says Mark Mowrey. "So it’s fun when we can buy into a momentum trend via a stock that hasn’t yet participated in the hype cycle." Here, he highlights his latest TechValue Stock of the Month, Veeco.
"Veeco Instruments (VECO NASDAQ), an out-of-the-spotlight name, is into some fancy stuff. In addition to products targeted at storage and semiconductor makers, the company’s gear includes nanotech research and manufacturing equipment. Plus, Veeco is leading the charge to convert most electronic and eventually much environmental lighting to hi-tech, low consumption sources. The division with the fastest revenue growth in the latest quarter sells ‘process’ systems to the storage device market.
"Metaphorically, the devices can be thought of as extraordinarily sophisticated spray painters and sand blasters with the capability to operate on a scale that would enable all the text in the Library of Congress to be stored inside a medium-sized pizza box. Because the devices play a very important role in allowing storage manufacturers to squeeze greater amounts of data into increasingly slighter spaces, the company has led the growth in demand of smaller hard drives intended for consumer electronics devices. In the latest quarter, storage-related revenue from all divisions soared 85%.
"A second division, targeting the high-brightness, light-emitting diode (HB-LED)/wireless markets, also sells process systems. This equipment is used to ‘grow’ crystals and to deposit metal-organic compounds on surfaces. Of particular interest are the evolutionary advances LEDs will make into new markets. From a foundation in wireless handset keyboard and screen backlighting, growth in sales of LEDs is expected to climb alongside the explosion in large LCD displays.
"LEDs will continue to migrate into areas previously the realm of bulb lighting. Starting with automotive tail lights and turn signals, LEDs may eventually take a spin in car headlights. And from specialty architectural and large sign illumination, the lights are expected to eventually make their way into home lighting by the end of this decade. Veeco says that 20% of global energy consumption is for lighting. HB-LEDs have the potential to cut that demand in half. Given ever-increasing worries about global energy needs, our guess is LEDs will push to the forefront of many solutions.
"Veeco is also the world’s largest supplier of Atomic Force Microscopes (AFMs), nanoscale measurement devices that are used in the storage and semiconductor industries for research and quality assurance and by the scientific community for research as well. Overall, w e remain excited about Veeco’s nearer- and longer-term opportunities. Based on that long-term outlook, we have developed a relatively aggressive valuation on the shares, which trade at 20 times current 2006 earnings estimates. The stock has backed off a recent high, dipping below half of our fair-value estimate, a signal to start buying. W e remain fervid buyers."
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