Wednesday, June 3, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       And that's why I want to draw your attention, first of all, to Tessera Technologies Inc. (TSRA)... which I recommended just last week at $20.17... and is already up nearly 7 points, or 34%, to $27.03...

Now this is the perfect example of what I mean when I talk about the risk/reward of speculating... I just recommended TSRA last Tuesday, and even I did not expect this huge of a move in such a short time.

Tessera belongs to the cohort of speculative tech stocks that we've been focusing on lately. But I still think it's a group that stands to benefit the most from the current leg of the tech rally... which took a little beating today... but not much more than that...

There's a whole host of mutual funds with deep pockets searching for overlooked tech names besides buying Apple every day... They need names they can buy hand over fist without feeling like they're too late to the party.

The semiconductor miniaturization stock of Tessera is up 10.6% today, because it announced a licensing agreement with Motorola (MOT) last night, and it also boosted its second quarter guidance on account of the actual licensing fees. It went higher even though the deal with Motorola should come as a surprise to no one... We did all know this was coming. I only got behind Tessera after the stock had already gone from $16 and change to $20, when the International Trade Commission decided in its favor against QualComm Inc. (QCOM*), which I own for my charitable trust... where you can follow along at ActionAlertsPlus.com. And it also had to deal with Motorola and Freescale... a major patent infringement case.

I thought Tessera was cheap at $20... and, after the ruling, you know it was actually I felt cheaper than when it was at $16 because, well... if you got in, and the ruling went against you, you would have been killed. The future was much less certain.

Now it's up so much that I think that you're finally just being greedy, if you don't take something off the table... And, if you missed the move, I do not want you to chase this. Do not jump in here. I would like you to ring the register.

The other tech specs have done pretty well too... Tekelec (TKLC), Brocade Communications (BRCD), Cadence Design Systems Inc. (CDNS)... which I really want to mention right now as a buy... one semiconductor, Starent Networks, Corp. (STAR)... the five I recommended during the week of May 4th... are up an average of 11.9%. The S&P 500 during that period is only up 2.7%. It could be "blind squirrel finds nut"... It could be "better to be lucky than good"... Whatever you want to call it, it's certainly beating the S&P and the Nasdaq, which is up 3.5%.

That leaves us with a bit of a high quality problem...

We need to hunt for some new tech specs... we need to get on the hunt... and maybe we need to find the son of Tessera, or its cousin, because our old ones have already delivered terrific gains in a very short period of time. We know that the theme is working... we know the tech specs with semiconductor exposure have done especially well... and we got a little profit taking today... but we know it, because we've been talking about Taiwan Semiconductor (TSM), and Xilinx Inc. (XLNX)... We like the Analog Devices Inc. (ADI)... and we like ON Semiconductor Corp. (ONNN)... and we like Advanced Micro Devices Inc. (AMD)... boy, AMD has been hot... and Tessera...

And today, we've been handed the opportunity to buy tech at a lower price...

So what fits?...

Teradyne Inc. (TER)... A semiconductor test equipment company that is a $7.05 stock... is what we're looking for... a tech spec that's a play on the bottom in the semiconductors...

Now the semiconductor testing business has been pretty darn awful for a long time... which means that there are only a couple of survivors left, and they've all been merging and taking each other over, leading to a huge concentration in market share in the hands of the remaining players...

Teradyne now has an unbelievable 40% market share... which should give them a whole lot more bargaining power as business improves. Now I have to tell you... these mergers... I doubt that most of them would even be approved... they wouldn't even be permitted by the new aggressive anti-trust commission... which is once again, amazingly because of Obama, back at the Justice Department, after its 8-year lease to the Commerce Department under President Bush.

The oligopoly is your opportunity...

Now, it's true that Teradyne can't be healthy unless the semiconductor manufacturers are healthy and spending money on equipment. So, when the industry is in a down cycle, it gets pounded worse then all their stocks... that's why it was in single digits. But, when the semis recover, and have money to spend again, they almost always start pouring it into equipment like the test gear Teradyne makes.

Now that we've seen signs of a bottom in the industry from multiple different companies, things could really start going this company's way. We're already seeing signs of improvement, as Teradyne beat the Street's earnings estimates and delivered better-than-expected guidance when it reported its most recent quarter. Nobody cared though...

On the conference call, management talked about higher utilization rates, along with the opportunity that a new kind of silicon wafer, which is currently being developed, could create, as these new wafers could have new testing requirements, potentially increasing the demand for Teradyne's products. Everytime you have a new product, it has to be tested more than others. I used to go visit Intel plants when they opened... The testing when they start a plant, at a foundry, is incredible. You need all of this equipment. Teradyne's basically at the very bottom of this food chain.

But that means that, when there's a turn, it's got the most room to improve... and go higher. It can deliver better-than-expected sales and earnings... real upside surprises that Wall Street goes nuts over... as the semiconductor business improves.

Plus the company hasn't been sitting on its thumbs while business has been terrible... It cut about $190 million in costs... 80% of those cuts being permanent, making it a leaner, meaner semiconductor testing machine maker.

The company also shrewdly took advantage of the weakness in the whole sector by expanding into two new areas with acquisitions in flash memory and disk drive testing... all part of the great testing consolidation that I'm talking about.

Teradyne is pure spec okay... this is just a pure speculation. It's got a good balance sheet, but it's just a pure spec. So please use limit orders. Buy in small increments. Wait a few days for the stock to come back down. You can't win with a single-digit stock if you buy it into a spike. If you buy it at $8, you're a fool.

With these caveats in mind though, I think this lowly tech spec could really get going now that business has started to turn around.

Here's the bottom line...

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