The Best Trend In Tech Just Got Better

| June 17, 2010 | 0 Comments

One of my favorite things to do is read the emails from Dynamic Wealth Report readers.  It helps me stay attuned to the issues important to you.

However, I’m always flabbergasted by a certain kind of reader response.  Among the thousands of legitimate compliments, criticisms and suggestions, there are always a few “crazy” emails.

They all say essentially the same thing… “the Dynamic Wealth Report doesn’t publish any real money-making opportunities.”

Regular readers know this is just plain hogwash.

All of us at the DWR work very hard to bring you actionable trading ideas on a daily basis.  Just look through the archives.  You’ll find tons of articles recommending real trades in stocks, ETFs, options, currency, commodities, and even bonds.

Many of these ideas have produced opportunities for big profits for thousands of our readers.  In fact, I’ve recommended a couple of profitable trades in just the past few weeks.

And I have another winning idea for you today.

As you know, I’ve been pounding the table on chip equipment stocks.  Over the past few months, I’ve written extensively about the huge growth opportunity in this sector.

You’ve read about the fundamental reasons supporting a robust recovery.  You’ve seen the strong growth projections for the industry.  And you’ve heard about industry leaders raising revenue and earnings guidance.

Hopefully, you’ve already racked up some terrific gains.

Last week I introduced Teradyne (TER), a leading manufacturer of semiconductor testing equipment.  At the time, the shares were trading at $9.88.  Today they’ve traded as high as $11.94.

That’s a better than 20% gain… in just one week!

And how about Novellus Systems (NVLS)?  I recommended this maker of thin film deposition equipment three weeks ago.  They were trading at $24.86.  Since then, they’ve traded as high as $28.67.

That’s good for a gain of 15%!

Best of all, this is just the beginning.

Just a few days ago, Gartner issued an extremely bullish forecast.  They’re expecting global chip equipment sales to top $35 billion in 2010.

That’s a whopping year over year increase of 113%!

More importantly, Gartner’s forecast indicates the chip equipment recovery is gaining momentum.  This new forecast is 16% higher than the one issued just three months ago.

So, how can you profit from this trend?

As promised, I’ve got another fast-growing yet misvalued chip equipment stock for you.

Nanometrics (NANO) makes high-performance process control metrology systems.  Chip makers use them in the fabrication of semiconductors, high-brightness LEDs, data storage devices, and solar cells.  These systems improve device performance and manufacturing yield.

In other words, they help improve quality, reduce manufacturing costs, and boost profits.

Business is starting to ramp up at NANO in a major way.

Take a look at their first quarter numbers compared to the fourth quarter.

Revenue jumped 41% to $37.2 million.  Gross margin improved to 55.3%.  And earnings increased from a loss of ($0.01) to a profit of $0.26 per share.

Best of all, they handily beat analysts’ estimates of $0.11 per share.

The huge quarterly growth in revenue, gross margins, and earnings shows business is accelerating.  And this is just the beginning.  Management says “we’re still at the early stage of the current upturn in capital spending.”

But won’t the crisis in Europe derail NANO’s recovery?

No way.  NANO shouldn’t see any negative impact from Europe.  They sell most of their systems to customers in the U.S. and Asia.  Just 5% of revenue last year was generated in Europe.

And their top customers are the bluest of the blue chip firms.

The company’s largest customer is Samsung… the world’s largest memory chip maker.  And their second largest customer is Intel… the world’s largest maker of microprocessors.

In fact, the outlook for all of 2010 is very good.

Analysts are forecasting revenue growth of 109% to over $160 million.  And they’re expecting the company to return to profitability with earnings of $1.18 per share.

Despite this bullish outlook, the shares are misvalued.

At a recent price of $11.37, the shares are trading at just 9.6x the 2010 estimate.  That’s well below the industry average P/E of 24.4x.  And it’s especially low for a company expected to grow earnings 20% annually over the next five years.

Given the company’s higher than average growth rate, I think they deserve a higher multiple.  Using a conservative P/E of just 13x, the shares are worth at least $16.64.

That’s upside potential of 46%!

Take a closer look at NANO for your own portfolio.  If you don’t have exposure to the chip equipment makers, you’re not too late.  I see NANO heading much higher from here.

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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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