The Oxen Report: Play of the Week in Semiconductor Equipment Manufacturer
Good Monday to all. I hope everyone had a fantastic week. We had a pretty successful week last week with a number of very nice Overnight Trades. On Friday, we had a so-so day. We got involved with a Buy Pick in DENTSPLY Inc. (XRAY) at 29.05, and we exited at at 29.40 for a gain of 1.20%. It was not a homerun, but we were still able to take away some solid profits. Our Short Sale of the Day, on the other hand, was a dud. We got involved with Skyworks (SWKS) as a Short Sale, believing the stock was heavily overbought, had underperformed on earnings, and had received a downgrade. It was not enough. We lost 3% on a Double Down play with an average entry at 18.25 at 18.79.
We also discussed a new Long Term Position in Sunpower Corp. (SPWRA). I have a fair value estimate in the mid-16s for SPWRA, and we are waiting for the stock to dip below 13 before a worthwhile purchase can be made. I will be doing an extensive Long Term Virtual Portfolio update today as an Oxen Alert.
Mondays are never great for day trades, so we will enter a new Play of the Week this morning and look at a new Overnight 
Trade for the afternoon.
Play of the Week: Teradyne Inc. (TER)
Analysis: Over the past couple weeks, chips and semiconductors have ruled earnings. With many of these companies at the front end of economic recoveries, chip and semiconductor manufacturers have seen an influx in business that is providing these companies with great earnings’ surprises and raising stock prices. One company that seems poised to continue this trend but has slipped under the radar to date is Teradyne Inc. (TER). The company, which is a semiconductor an memory device test manufacturer. Their equipment tests chips, semiconductors, memory devices, analog devices, etc. for electronics’ companies. Teradyne is set to report earnings on Wednesday evening at an EPS of 0.47 vs. one year ago’s earnings per share loss at -0.21.
Teradyne is in the semiconductor equipment sector. Since mid-May, thirteen semiconductor equipment companies have reported earnings with ten out of thirteen reporting surprise gains. Two out of three with losses have a market cap less than $200 million. Competitors of Teradyne include Verigy Ltd. (VRGY) and LTX-Credence Corp. (LTXC). These two companies had surprise earnings of over 250% and 25%, respectively. Teradyne’s industry has been doing exceptional. One would expect that TER would be overvalued or at least somewhat overvalued with the recent bull run and success of similar companies, yet TER is not and has plenty of room to grow, which is why it is well suited for my Play of the Week.
Not only is the company turning to a profit from one year ago and poised to grow for the fifth straight sequential quarter, TER should beat its earnings estimates. The company’s peers and competitors are all reporting very solid earnings, but the company itself has ben continually reporting earnings beats with over 10% surprise earnings for four straight quarters. The
company, in the latest quarter, was recognized by Texas Instruments as the top semiconductor testing company supplier, and the company continues to grow its distribution line with its testing product – UltraFlex. The company operates mostly in the mobile devices, semiconductors, automotive, computers, and electronic gaming equipment. I don’t need to harp on how well semiconductors have done, but the other sectors are worth a glance.
Automotives are doing exceptional as well. Ford (F), this past week, reported that the company had a $2.6 billion profit in the latest quarter and sales are at the highest levels in years. Toyota Motors (TM) is poised to report a $1.1 billion profit. In April – June, auto sales slowed in April from March, but across the board, were significantly higher than one year prior. Auto sales rose 19% in May, year-over-year, and while June was disappointing, auto sales were still over 15% higher across the board. The return of the automotive industry has been very helpful to semiconductor companies, and companies like Teradyne will definitely benefit from their continued return to profitability and higher sales.
Software for computers and electronic gaming systems was fairly weak in April through June, but mobile devices more than made up for that which is Teradyne’s bread and butter. Device sales at Apple, Motorola, and Palm all are reported to be higher in Q2. All these companies that are seeing growth are buying more semiconductors, chips, analog devices, and they .png)
all have to be tested. This is where Teradyne comes into the picture. The company continues to also grow its presence in China, taking on a new agreement with Chinese mobil device manufacturer Specturm.
Further, the company has a desperately low P/E ratio at 6.6. The company’s industry average is around 15. With that low P/E, a small earnings beat will be taken very well and increase share prices heavily. The company should definitely growthroughout the week as it gets closer to earnings. Another great sign for TER is that in the past three months it has received two new analyst estimates at "Buy" ratings, as analysts agree this company is too undervalued.
Going forward in the week, Wednesday will be a great buying day moving into earnings. Tomorrow, the company should receive a solid boost as semiconductor equipment giant Entergis reports earnings and should boost the entire sector. From this company’s low valuation currently, the company has around 5% growth capabilities to its upper bollinger band. The bands on TER have narrowed too, which shows that the company is poised to breakout higher or lower. The company is moving above its 50-day MA, which means that breakout should be on the high side. Despite being above the MA, the company still has a fair value on RSI right at 50.
Get in today and make some money on Terdayne!
Entry: We are looking to get involved at 10.15 – 10.25.
Exit: We are looking to gain 4-6% before earnings or exit on Thursday morning after earnings on Wednesday evening.
Stop Loss: 5% on bottom.
Good Investing,
David Ristau
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