Big Money Moving Into This Trio of Techs

01/13/2012 8:30 am EST


Rob DeFrancesco

Founder, Tech-Stock Prospector

While these stocks were knocked around a fair amount in 2011, 2012 is shaping up a bit differently, writes Rob DeFrancesco of Tech Stock Prospector.

Shares of LinkedIn (LNKD) have been quite volatile since I last looked at the stock in September, rising into the mid-$90s in late October and then falling to a new low of $55.98 at the end of November.

I still think the company has a very promising future because it is quickly becoming the standard platform for professional networking and job searches. My problem since the May IPO has been the valuation.

In the third quarter, the company reported revenue jumped 126% to $139.5 million, above the consensus estimate of $128.7 million. Revenue from hiring solutions (51% of total revenue) advanced 160% to $71 million, while marketing solutions revenue (29% of total) was up 113% to $40.1 million and premium subscriptions revenue (20% of total) rose 81% to $28.4 million. International revenue accounted for 33% of total revenue.

The number of LinkedIn members rose 63% year-over-year to 131.2 million. The company offered fourth-quarter revenue guidance of $154 million to $158 million, above the consensus estimate of $148.6 million. For 2012, the consensus revenue estimate now stands at $807.5 million (up from $756.5 million in early September), representing estimated growth of 58%.

Using the new 2012 revenue estimate and a somewhat more conservative forward price-to-sales multiple of ten times (down from 15 times), my fair-value target is revised upward to $83.85 from $76.25. In order to get a 25% return to this target, LinkedIn shares would first need to decline to around $67.

T. Rowe Price sure has a bullish view on LinkedIn. The mutual-fund firm disclosed in early December that it now owns 5.23 million shares, or 13.2% of the outstanding shares. T. Rowe Price loaded up on the stock during the past couple of months, because it only owned 139,400 shares at the end of the September quarter.

TriQuint Semiconductor (TQNT)
Shares of this provider of radio frequency (RF) solutions have been all over the board this year. After ending 2010 at $11.69, the stock rallied to a high of $15.20 in the middle of February before hitting a 52-week low in late November at $3.97.

The majority of TriQuint’s revenue (70% in the latest quarter) comes from its Mobile Devices unit, which had a demand hiccup in the third quarter caused by some weakness at its largest customer—Apple (AAPL)—and a pullback in China. The company burned off excess inventory in the December quarter.

The long-term growth story remains intact: RF content for high-end smartphones and tablets is anywhere from $5 to $7 per unit, vs. $2 to $4 per unit for feature phones. If TriQuint can win some placements in Android smartphones, it should see a pick-up in demand in the second half of 2012.

New capacity being brought online in the first quarter of 2012 will support quarterly revenue of around $300 million (the fourth-quarter consensus revenue estimate is $219.8 million), so TriQuint is leveraged for growth, as it has already made the investments necessary to support an expanded run rate. The balance sheet is solid: no debt and 89 cents a share in cash and investments.

In the third quarter, T. Rowe Price was a big buyer of TriQuint, boosting its position by 142% with the purchase of 9.35 million shares. It’s now the No. 1 investor, holding 15.93 million shares.

Fidelity, the No. 2 investor, trimmed its holdings in the September quarter by 32% to 9.67 million shares. At the end of November, a TriQuint director spent about $440,000 to purchase 102,500 shares, at pricing ranging from $4.18 to $4.31 a share.

AeroVironment (AVAV)
The leading provider of small, unmanned aircraft systems (UAS) used mainly for military reconnaissance, the company reported fiscal second-quarter revenue growth of 26%, driven by strong demand for its Raven and Puma products.

Raven, the company’s workhorse UAS, has a wingspan of just four and a half feet and weights just 4.2 pounds. The hand-launched Raven provides aerial observation (day or night) at line-of-sight ranges of up to ten kilometers. It can be operated manually or programmed for autonomous operation utilizing the GPS system.

Puma, designed for land-based and maritime operations, carries an electro-optical and infrared camera on a mechanical gimbaled payload, allowing the operator to keep “eyes on target.” In August, AeroVironment received a $65 million order from the US Special Operations Command for the Puma, which weighs about 13 pounds and has a flight endurance of roughly two hours.

The company’s new Shrike VTOL, a vertical take-off and land micro air vehicle system, operates in hover-and-stare or perch-and-stare odes used for surveillance purposes. This product could have commercial uses beyond the defense market, especially in the local law enforcement sector.

AeroVironment’s most promising new product is the Switchblade—a short-range, lightweight UAS (carried in a backpack) that is also a precision-guided missile.

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