2013 has been kind to investors as the three major indices are
all up 20% or greater. I believe that we will still see a Santa
Claus rally that will see the indices close out the year at new
highs. With that said, I expect to see the rise in stocks to extend
to 2014, but that investors will need to be more stock specific in
their investments. I have identified four stocks that I believe
could double in 2014 and which are all takeover candidates.
Brocade Communications Systems (
Brocade Communications Systems engages in the supply of Internet
protocol based Ethernet networking solutions and storage area
)) solutions to businesses and organizations worldwide. Brocade has
seen a return to growth and has been generating huge positive cash
flows. As cash flows increase in 2014, it will allow Brocade to
continue with its buyback or make small strategic accretive
Reasons to be bullish on Brocade Communications
- Huge positive cash flows: this past quarter, Brocade
generated $170 million in free cash flow and is forecasting cash
generation of $500- $535 million in FY2014.
- CEO, Lloyd Carney is focusing on growing core strengths while
divesting lower margin business. Brocade is now seeing its
highest profit and operating margins since 2000 when it was
$30.00 per share.
- Brocade is focusing on cloud and virtualization and is
focusing more on software as opposed to hardware.
- Buyback: Brocade has a $1 billion buyback in place. In FY2013
it bought back $241 million. The continuance of the buyback
should drive the stock higher.
- Takeover Candidate: The CEO sold the last of his two
companies Xsigo Systems and MicroMuse to Oracle (
) and IBM Corp. (
) respectively. With its high cash flows and return to growth it
could be an attractive target of Oracle, IBM, or Cisco Systems (
(click to enlarge)
Looking at the daily chart we can see that after earnings last
week it broke out from its trading range to new highs at $9.00. The
chart is signaling that it should rally into year end and I expect
it to be around $12 after the Santa Claus rally.
(click to enlarge)
What really excites me is the 12 year chart. As you can see on
the chart, Brocade has been in an 11 year trading range. It brings
to mind the saying "The longer the base, the higher in space." When
Brocade breaks above $10.00, I expect to see it make a move back to
12 year highs of $30. The move will not be straight up, but I
expect it to reach my 2014 price target of $20.00.
Radware Ltd. (RDWR):
Radware Ltd., is an Israeli based company that provides
solutions for virtual and cloud data centers. It competes against
Riverbed Technology (RVBD), F5 Networks (FFIV), Aruba Networks
(ARUN) and Cisco Systems. Radware recently returned to growth and
with the excitement surrounding its DefenseFlow product, I expect
revenue growth to continue through 2014.
Reasons to be bullish on Radware:
- Growth has returned to Radware as its focus on cloud cyber
security through its new product offerings such as DefenseFlow
appears to be paying off. Last quarter it saw product revenue
growth, particularly in North America, its largest market.
- With a return to growth, I believe that we will be able to
see a return to increasing revenues quarter over quarter which
will bring earnings momentum back to the stock.
- Radware has a strong balance sheet with $271 million in cash
($6.15 per share) and no debt. It has high, enviable gross
margins of 82% and management believes it can retain these
- Radware has an active buyback of $40 million in place.
- Takeover Candidate: Radware's return to growth has been at
the expense of Cisco Systems as it has been taking market share
from them. As a much bigger player Cisco is an obvious candidate
to buy Radware; other potential buyers are Riverbed Technology,
F5 Networks, and Aruba Networks as we see consolidation in the
(click to enlarge)
On a daily chart we can see that Radware made a triple bottom at
$13.75 and broke out $15.25. That initial breakout took the stock
to $17.00 where it is currently in the process of consolidating.
Expect to see it form a short-term trading range here before it
continues its ascent upwards. With momentum players coming into the
stock and as multiples expand it should be able to hit my 2014
price target of $35.
AudioCodes Ltd. (AUDC):
AudioCodes is a small cap Israeli VoIP Communications Company in
the Unified Communications (UC) and data center markets. AudioCodes
was my favorite stock in 2013 and I wrote a number of articles on
it. I believe the growth story is far from over and that it will
see further growth in 2014 as its Microsoft (MSFT) Lync strategy
leads to increased revenues quarter over quarter. This morning Dell
announced that "AudioCodes has been selected by Dell as the voice
networking solution provider for the company's Accelerate Program
for Microsoft Lync."
Reasons to be bullish on AudioCodes:
- Partnership with Dell: One of AudioCodes' business models is
to be a plug and play for Microsoft Lync, this fits with Dell's
business model of being a complete end-to-end solutions provider
to Enterprises. This morning's announcement from Dell solidifies
the relationship between the two companies and could lead to
- Analyst coverage: following on the heels of today's Dell
announcement I would look for analyst upgrades, or additional
- All IP networks are going to the cloud. The growth of cloud
data centers continues unabated and AudioCodes' will be a direct
beneficiary of this growth as the leading voice IP company.
- Mobile play: 2014 could be the year when AudioCodes sees
greater adoption from enterprises and service providers of its
VMAS solution to enable them to offer a cloud OTT mobile
- Takeover Candidate: Aside from Dell, AudioCodes has
positioned itself to be an attractive addition to Microsoft,
Hewlett-Packard (HPQ), Cisco Systems, IBM Corp and AT&T
(click to enlarge)
AudioCodes looks to have found support at $5.50 and with a MACD
crossing at low levels; the stage is set for a move to $6.00 -
$6.50 by early 2014. On the back of announcements like the one with
Dell today and further earning beats on upcoming quarters, my 2014
price target is $12 - $15.
MoSys Inc. (MOSY):
MoSys is a fabless IP-rich semiconductor company that develops
and sells integrated circuits ((ICS)) for the high-speed
networking, communications, storage, and computing markets. Its
patent protected Bandwidth Engine IC increases data path
connectivity, speed, and intelligence while eliminating data access
bottlenecks on line cards and systems scaling from 100G, to 400G,
to multi-terabits per second. With Internet and cloud traffic
increasing dramatically and the networking equipment OEMs in the
initial stages of moving to 100G and 400G networks; MoSys with its
Bandwidth Engine IC chips is seeing it be designed into these new
products and 2014 should be the year the market realizes the
potential for MoSys.
Reasons to be bullish on MoSys:
- MoSys is run by an industry veteran, Len Perham who has an
unbelievable track record. As Chairman Integrated Device
Technology (IDTI) from 1992 - 2000, the stock went from $3 to
$100. While at IDTI he spun off four companies: MoSys where he is
now CEO and Chairman. Galileo Technology (sold to PMC Sierra
(PMCS) for $2.3bn), Quantum Effect Devices (sold to Marvell
Technologies (MRVL) for $2.7bn), and NetLogic Microsystems where
he was Chairman (sold to Broadcom (BRCM) for $3.7bn).
- Its patent protected Bandwidth Engine IC has started
generating revenues and the second generation goes into
production this quarter.
- GigaChip Interface ((GCI)): MoSys developed this chip to chip
interface and it is being adopted by chip designers, with Tabula
Inc. being the latest to come out in support. With the GigaChip
Interface becoming an industry standard it raises MoSys' profile
and should lead to a greater number of design wins for its IC
- In July, MoSys introduced LineSpeed a new product for line
cards, already the company says it is winning orders and seeing a
high level of interest in it. This new source of revenue will
allow it to achieve profitability faster than anticipated.
- Takeover candidate: MoSys could be targeted by the networking
OEMs such as Cisco Systems, Alcatel-Lucent (ALU), or Juniper
Networks (JNPR), or it could be snapped up by one of the
companies it has highlighted as potential partners such as Cavium
Networks (CAVM), Broadcom, or LSI Corp (LSI).
(click to enlarge)
MoSys made a bottom at $3.50 and was recently in a $4.00 to
$4.50 trading range. Friday saw the stock break out of this trading
range and next week we should see the 50 day moving average cross
above the 200 day moving average which will be a Golden cross and
should drive shares up to $5.50 - $6.00 by year end. As new orders
and design wins are announced the stock should climb to my 2014
price target of $10.
I am long [[AUDC]], [[BRCD]], [[MOSY]], [[RDWR]]. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
Chipotle's 2014: Are You A Bull Or A Bear?