If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
An Odd Couple of Innovators
07/23/2007 12:00 am EST
Mark Skousen, editor of Turnaround Trader Alert and Forecasts & Strategies, says a leading chip maker and a manufacturer of wind turbines are well-positioned and attractively priced for investors.
Tech stocks are selling at lofty heights these days—for example, software giants Red Hat and Symantec are selling at 70x earnings, and semiconductor [manufacturer Broadcom trades] at 59x earnings, but there are a few real bargains still out there.
Texas Instruments (NYSE: TXN), the Dallas-based computer and calculator giant, is selling for only 14x current earnings, a 14% discount on historical averages. With profit margins at 30% and an expanding market around the globe, TXN has an impressive track record of increasing free cash flow. The company has built up $3.3 billion in cash with no debt. Last quarter, its revenues and earnings fell slightly, but that's an anomaly. TXN has been on a roll for several years, and there's no evidence of it turning back.
Texas Instruments reached $100 a share during the go-go years of the Internet bubble, but today it is steadily beating the market at a third of its all-time high. It's time to get aboard. Let's add TXN to our turnaround portfolio, and set a protective stop of $38 a share. (It closed at $38 Friday—Editor.) For those willing to take greater risks for potentially greater rewards, buy the January $45 calls (TNZ-AI).
Based in St. Louis, Zoltek manufactures and sells carbon fibers, the primary building material in many commercial products, including automobiles, drilling platforms, fuel cells, pipes, and of course, wind turbines.
Although the company is just beginning to operate in the black, the stock has more than doubled over the past year. Clearly, the market believes that the future is bright for this company. In particular, the demand for wind turbines is booming.
"The wind energy business remains very healthy," says Michael Carboy, an analyst with Signal Hill Capital. He believes Zoltek is on the verge of getting new long-term contracts from turbine makers Gamesa of Spain and Vestas of Denmark.
Demand for Zoltek's products already exceeds supply. And that won't change for at least two years. That means Zoltek's sales and earnings are about to explode.
The wind market is projected to grow at 15% a year for the next five years. And I expect Zoltek's earnings to rise six-fold this year and then double next year.
So pick up ZOLT at market today. And place a protective stop at $40. (It closed at $48 Friday—Editor.) If you prefer to play this one more aggressively, try the December $55 calls (LVQ-LK).Subscribe to Forecasts & Strategies here…
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