Grab These Shares While They’re On Sale

| May 27, 2010 | 0 Comments

Everywhere you look the financial news media is freaking out about the market.  It seems like the pundits are in a competition to see who can paint the bleakest picture.

They’re giving new meaning to the term “sensationalist journalism”.

I guess that’s what attracts the most eyeballs these days.

While I’m certainly concerned about the market downturn, I’m not in panic mode.  I still believe the market is undergoing a normal, healthy, long-overdue correction.

As with most corrections, the events giving rise to it are alarming.  Europe has real economic issues and systemic problems to deal with.  And there is a risk these issues could derail the fragile global economic recovery.

I just don’t believe the situation is going to spiral out of control.

Everyone is aware of the problems.  The world’s best and brightest minds are working day and night to resolve them.  And they all have a common goal… fix the systemic problems without stifling the economic recovery.

I have faith the problems will be solved (or at least pushed off into the future) and the recovery will continue.

That’s why I’m making a list of stocks to buy during this correction.  We’ve had to wait over a year for a pullback of more than 10%.  Who knows when we’ll get another opportunity to pick up stocks at discount prices?

Last week I made a compelling case for adding a Big Pharma stock or two to your portfolio.  Today I’m going back to one of my favorite themes for 2010 and 2011.

The robust recovery in semiconductor equipment manufacturers.

Dynamic Wealth Report readers may recall my recommendation of MKS Instruments (NASDAQ: MKSI) in early March.  In the article, A Low Risk Way To Play The Recovery In Chip Stocks, I suggested buying MKSI to cash in on the recovery in chip equipment makers.

Thanks to the correction, you now have another opportunity to buy MKSI around $19.  After I recommended them, the shares jumped 26% on blowout first quarter earnings.  Now they’ve pulled all the way back.

But I digress.

Let’s get back to the vigorous chip equipment recovery.

After two straight years of huge declines, the chip equipment industry is just starting a new growth cycle.

Chip makers are once again investing huge sums to increase their production capacity.  It’s the only way they can keep up with soaring demand.

As a result, new orders at chip equipment makers have increased in six straight months since November 2009.  Clearly, demand for chip making equipment is accelerating.

The outlook for the industry going forward is excellent.

SEMI, the industry’s trade group, is forecasting chip equipment sales will grow a whopping 53% in 2010!  And the group’s expecting sales to jump another 28% in 2011.

This is definitely one trend you don’t want to miss.

Shares of chip equipment makers usually post huge gains during the early stages of an industry growth cycle.  And the company I’m writing about today is no exception.

Novellus Systems (NASDAQ: NVLS) is a fast growing, misvalued chip equipment maker.

NVLS specializes in manufacturing equipment that deposits extremely thin films of insulating and conductive materials on semiconductor chips.  These materials are used to create the wiring on each individual chip.

I know it sounds complicated.  The key point is the company’s products are critical technologies for creating advanced semiconductor devices.  Semiconductors are used in computers, TVs, cell phones, automobiles, and thousands of other devices.

NVLS supplies many of the top semiconductor companies in the world.  Companies like Intel (INTC), Taiwan Semiconductor (TSM), and Samsung just to name a few.

All of these companies are buying more chip manufacturing equipment in order to increase production capacity.  And NVLS is in prime position to benefit from this new investment cycle.

In fact, renewed demand is already showing up in NVLS’ financials.  Just take a look at the company’s first quarter 2010 results.

Revenue jumped 13.9% from the fourth quarter and 179% from the year ago period to $276 million.  Net income jumped 17% to $41.3 million.  And, earnings increased 19% to $0.47 per share.

Both revenue and earnings blew away analysts’ estimates.

As a result, analysts have been raising estimates across the board.  They now expect NVLS to earn $2.32 a share in 2010 and $2.96 a share in 2011.

That’s a 34% and 27% bump in just the past 90 days!

At a recent price of $24.86, NVLS shares are nicely misvalued.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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