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[Beginning of
Cramer's
verbatim
comments for
this segment...]
Jim:
Shh... All
right... What's
the next tech
stock that I
believe could
absolutely blow
away the numbers
when it
reports?...
Remember what I
told you about
Intel (INTC)...
the clues were
all there,
hidden in plain
sight... but no
one was paying
any attention...
Otherwise its
total blow out
quarter wouldn't
have surprised a
soul... So
tonight... I
have another
stock, another
chip maker in
fact... a little
bit different...
a storage
chip... and it
reports next
Wednesday... And
just like with
INTC, just like
in Edgar Allen
Poe's, "The
Purloined
Letter", a story
that, like you,
I'm sure you
were forced to
read in
school... if you
didn't read it
on your own...
It stands for a
simple
precept...
The answers are
right in front of
your face... You
just have to look
this time... See,
this is a tale of
radius nation, to
borrow a word from
the great Poe... and
it starts with
Novellus Systems, Inc. (NVLS),
the semiconductor
equipment company
that reported a
better than expected
quarter on Monday...
It was the NVLS
quarter that allowed
me to tell that DELL
with its lousy
quarter was wrong...
Totally
unrepresentative of
what's really
happening in tech...
And we saw that
today in the big
Nasdaq
rally... And that
INTC was right... So
you know what?...
I'm going back to my
source...
On the NVLS
conference call,
which no one was on,
because we're all
worried about the
woes of the auto
industry, the
housing industry,
the airlines, the
banks... In the
highlights... they
said NAND prices are
up dramatically...
75%... and they said
on a certain
version, which is
due to robust demand
of smart phone and
some supply cuts...
Hmm, I said to
myself, self... huge
demand for NAND
flash... That's a
kind of memory based
on semiconductors
that's usually
predominantly in
smartphones...
because it takes up
less space and less
power than a
traditional hard
drive... Plus, its
more resilient,
because it has no
moving ports... Am I
going to read this
in NVLS' conference
call and do nothing,
not alert you of a
thing?... What a
clue. Right in my
face... Now, that
passage I read may
not scream anything
out to you... but to
me, it's like a
letter coming right
down out of the
sky... And what's it
say?... Dearest
Investors... Buy
SanDisk Corp. (SNDK)...
Sincerely, The
Market... Buy
SNDK...
This much lows stock
is the purest play
on NAND flash
memory... And with a
clue like this... It
can not be
ignored... This
company is huge
mobile internet
play, because it
makes the chips that
all of these devices
use to store
videos... to store
songs, like when you
store Lady GaGa...
or everything
else... And since
new smart phones
have more and more
storage space, that
means that there is
incredible demand
for NAND flash
chips, like SNDK
makes... just as we
heard from NVLS...
This is the right
part of the product
cycle... Remember,
everything trades in
a cycle... We need
to own this stock
when it's at this
point in the product
cycle... Now, I do
worry that SNDK is
so despised by so
many people that
people might ignore
the evidence until
it is too late...
How hated, exactly
is SNDK?... Last
week,
Morgan Stanley (MS*)
put out a note
raising estimates,
and saying the
company will likely
beat the Street's
consensus
expectations when it
reports earnings
next Wednesday...
They gave it a big
number bump... They
raised their fiscal
2009 estimates from
$1.39 loss to $1.01
loss... But listen
to this... For the
fiscal 2010... they
raised their
estimates from 13
cents to 22 cents on
percentage basis...
that's gigantic...
But you know what
Morgan Stanley
didn't do... They
didn't upgrade SNDK
despite those
positives... The
analysts at Morgan
Stanley couldn't
ignore the hugely
bullish facts SNDK,
but could still keep
the rating at equal
weight... analyst
speak of course for
hold or neutral...
rather than
upgrading it to buy,
because the company
is so disliked...
This is a classic
analyst mistake, in
my opinion... They
feel like they can't
have too many buys
or sells... They
don't like the
company because it
has disappointed
before... so they
end up being too
negative when the
sector they cover as
in bull mode... and
too positive when
things are bad...
That's the way they
work, either way...
SNDK is so hated
that it's the
obvious choice not
to upgrade...
I think the mobile
internet story in
the huge demand for
its chips means SNDK
should be bought
right here... But
I'm the first guy to
admit the company is
hated... and for
good reason...
Remember, SNDK is
the company that
turned down a $26 a
share takeover bid
from Samsung last
fall... even though
their stock was at
$13 before news that
Samsung was
considering buying
the company out...
It went as high as
$20 and change,
while the bid was
being considered...
and then dropped to
$10, after it
rejected the bid...
and Samsung withdrew
its offer... I stuck
SNDK CEO, Eli
Harari, hard to do,
because he had been
on the show, and I
like him... But I
put him on the Wall
of Shame that very
day... October
22nd... and labeled
him a complete
destroyer of
value... But I gave
him a reprieve on
June 1st, when SNDK
linked a cross
licensing agreement
with Samsung... and
because I thought
the stock was simply
too cheap at $16,
the same price where
it is right now...
See, I haven't
really missed
anything...
I think SNDK could
deliver a huge
upside surprise next
week... People think
April was bad, but
INTC's call they
said April not good,
May even better and
June spectacular...
I think the same
thing is going to
happen here... and
partly because
business is very
good right now...
and part because the
expectations are too
low... There had
been a glut of NAND
flash chips...
People were talking
about price cuts in
April... All the
players in the
industry, though,
cut back on
production, lowering
supply... And now,
with a major
increase in the
demand for the
devices that use
flash memory,
especially again, in
Asia... Don't look
to
Best Buy (BBY)
as the place here...
that's allowing
prices to
increase... And this
is just the
beginning. They
could go much
higher... Because
we're still in the
early innings of
this mobile internet
cycle... At the same
time, SNDK costs to
manufacture have
come down... running
at full capacity
now, compared to 70%
the year before...
again cross margins
expand there... And
by the end of the
year, it's expected
to have adopted a
production process
that's 30% cheaper
than the current
standard, for
roughly half of its
total output...
further gross margin
expansion...
Now, this isn't a
fabulous tech
company... It's just
not... It's kind of
a commodity
company... But, at
this point in the
cycle... like
TriQuint Semiconductor, Inc.
(TQNT),
RF Micro Devices Inc. (RFMD),
Skyworks Solutions Inc. (SWKS)...
you get, because
demand coming from
smart phones with
more and more
memory, HD video
recorders that also
need lots of
storage... and more
demand for durable
solid state drives
that use NAND
flash... This is all
going to mean that
it should be easy
for SNDK to do
well... Last week
Samsung called the
bear market in
semiconductors
over... And they got
a big new deal with
SNDK... To put it
simply... this
company is all about
the product cycle...
and when we hit the
right point... Boom,
it's off and
running... Not
everyone agrees...
another reason why
SNDK can blow away
the numbers next
week... Analysts are
too bearish... We've
got the analysts who
covers the stocks of
Pacific Crest... He
is saying that
business is bad...
He's lowering
estimates... I think
he is going to be
wrong... There are
only six buys on
this stock... there
is nine holds... and
there is four
sells... And, among
the sells are Bank
of America, Merrill,
Lehman... Those guys
are important...
Guys, upgrade before
the quarter and
you'll be forgiven
for not seeing the
Purloin Letter, even
though it was hidden
in plain sight.
▼ ▼
▼ ▼
▼
 The Bottom Line!:
A lot of you may
have missed
Intel (INTC)'s
fabulous blow out
quarter today, even
though the evidence
was all there...
Don't make the
mistake with the
Purloin Letter that
is
SanDisk Corp. (SNDK)...
I think it's a buy
ahead of the
quarter, and also an
investment... in the
mobile internet
tsunami.
[verbatim recap]
[end of segment]
Read Jim's next Segment
here
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