Tuesday, May 26, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       We saw a lot of this action in the powerful tech rally… and it is also a stance that has been indicated by my original 5 tech specs… which are up an average of 9.5%, since I recommended them at the beginning of this month… Tessera is in the semi-conductor miniaturization, or semi-conductor packaging businesses… two descriptions as with many tech specs only makes it impossible for you to understand what the companies actually do… which is mainly develop and license technology that allows device makers to produce smaller gadgets… ever smaller, by reducing the amount of space taken up by chips… we like being levered to small gadgets… that is what On Semi-Conductor is about, we had that CEO on the other day, that stock is hot… how about the Skyworks Solutions, which I mentioned on the wonderful and fabulous show, finally back from some area that no one was willing to go to… and we particularly like them when consumer confidence spikes… suggesting that shoppers could be coming back to buy more cool tech gizmos… that gobble up the semis.

Why do I like Tessera more up here than I might have a week ago when the stock was at $16... am I an idiot… a moron perhaps… according to the blogs, yes… but not in Cramerica… it is because a tremendous amount of risk has been taken out of this stock without its share price reflecting the full, logical reward… see Tessera is up 21% since the International Trade Commission ruled in its favor in a major patent infringement case on Wednesday after the close… just a week ago… the ITC ruled that Tessera’s patents on semi-conductor packing technologies that allow wireless devices to be smaller, were valid… and several of the big dogs in the industry like Qualcomm, an AAP name that roared today when estimates were raised… along with lowly worm Motorola and pathetic Freescale… were ordered to stop selling products that infringe on those patents… this creates major new royalty revenues… I love royalty revenues… you do not have to do anything… they just come in… it is like being a really bad hitter that got paid a lot of money by the Yankees...

This is for Tessera, as these companies are forced to negotiate licensing agreements with it for about $60m in sales in 2009 alone… that is huge for a company this small… and there is also the fact that legal fees should take a much smaller bite out of the companies earnings… until this ruling, Tessera was a bit like a law firm with a semi-conductor business… so even though the stock jumped from $16.61 to more than $20 after the ruling came out… I like it much more up here… much more than $16 and change, when we did not know what the outcome would be… this is not a case where you missed the big move… this stock was at $40 before the litigation started for heavens sake… and a lot of that weakness involved a concern about a loss in court… this is a case where it would have been irresponsible for me to tell you to speculate if the ITC had ruled that Tessera’s patents were not valid… I mean you had to wait… you would have crushed me.

I think this stock has a whole lot more upside in it… Tessera is waiting on another ruling for a memory patent from the ITC, a very similar litigation… likely to have another ruling in the company’s favor increased dramatically… although, we do not have to wait for that one… it will be gravy, or icing… given last weeks major victory… and it cannot hurt earnings even if Tessera loses… if Tessera has lost last week… holy cow, we would have taken a real beating.

The company has $8 in cash though, no debt… a little bit of a floor there… share price still could have been sliced… had that court ruled against it… now we are in a better position to speculate and it is well worth paying the extra $3 for that sense of security… otherwise, we would have been betting on the ruling… I am telling you, I regard the ruling as a Mad Money lovey blanket… frankly, the stock should have been up at least 6 points on the ruling… so there is a ton of upside.

Alright, why do I like Tessera right now, away from the litigation victory… first of all, levered to the semi business, which we know from Taiwan Semi, On Semi, Skyworks, AMD, and Analog Devices is on the rebound… but when Tessera reported 1st quarter results at the beginning of the month… oh boy, gave disappointing guidance about what it would make in the second quarter.. you know what that is all about.. that is called UPOD… I think they are under promising, I think they will over deliver… see since Tessera makes its money by royalties on tech that semi-conductor companies use… they usually get paid about ¼ after the chips are actually sold… it lags the semis by about a quarter… we should expect a semi rebound to start showing in Tessera’s numbers in the not too distant future… that is why I think that big tech mutual funds should salivate over this one… upside to the future, not right now.

Hey, the company has got a lot a bunch of new technologies that could be very profitable… imaging and optic business, where it develops tech gadget makers to stick ever smaller cameras in cell phones and computers with better image quality.. everybody loves these things… it allow cameras to zoom in without using any mechanical part… all of this for less money… that is right Tessera helps these businesses cut the cost of sticking a camera in virtually every device that is out there… for about a .35 cent royalty to Tessera they can cut $2 out of the cost of the camera… this is your kind of thing… people are always asking me about this kind of stuff… they have recently licensed their optic technology to Samsung, Toshiba, Fitshua, and Utec…. not to mention Nokia, which has already given Tessera three design lens…. probably more coming… I could pretty much see every company that makes cell phones or ltops ultimately adopting Tessera’s technology… since the cost savings are so obvious… and there really is not much in the way of competition… you might not have wanted to use it until you got the lovey blanket court decision.

Tessera is also working on a new ionic cooling system… these guys are really all over the place… hey it could move up to 30% more heat for ltops than a traditional exhaust fan… have you ever felt underneath a ltop after you have had it on the bed… I mean, it is like hitting a frying pan… this thing could be like the ionic breeze from the late Sharper Image… except for it works… the company expects to commercialize this next year… and it is not even in the numbers yet… I think it will be enormous… as there has to be a massive market for anything that could cut down the unpleasant burning sensation caused by actually sticking a ltop in your l.

Just because Tessera’s is priced in the single digits does not mean that it is not incredibly speculative… the companies market capitalization under a billion… and it is possible, but unlikely, that the ruling in its favor last week could be reversed… I am not betting that… I am making an exception to my Taft Hardly mandatory weekend cooling off period for speculative stocks… because Tessera represents a much broader theme… the tech specs… which has been red hot… scalding, as hot as your computer… and because I trust you not to buy this one after hours… not to buy it tomorrow, or into any kind of spike… and because I know that you will not buy a little speculative stock like Tessera all at once.. you are too smart for that… do not prove me wrong… and do not prove right all of the journalistic critics of this show, who constantly demean you and everyone else in the audience, by describing you as lemmings.

Here is the bottom line for speculation…

Read Jim's next Segment here  
    

Read Jim's next Segment here