For Immediate Release
Chicago, IL - Dec 8, 2017 - Zacks Equity Research highlights Lam Research LRCX as the Bull of the Day and Mallinckrodt PLC MNK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on the Texas InstrumentsTXN , Vishay IntertechnologyVSH and Marvell TechnologyMRVL .
Here is a synopsis of all five stocks:
I haven't written about Lam Research as the Bull of the Day since June and a lot has happened since then.
First, they've reported two "beat-and-raise" quarters since then and shares rallied from below $160 up above $210.
Since Lam was 1 of 5 members of my $200 Club , I call that mission accomplished.
And the strength for this maker of wafer fabrication equipment (WFE) for the semiconductor industry was part of a very strong technology sector that was driving record sales and earnings growth for many companies.
The second thing that's happened is a short-term top in the over-bought semis group that brought Lam down below $180 this week.
As one of the leaders of the chip gold rush on the way up, along with NVIDIA , Lam was due to lead the group lower too.
In fact, on November 28 after some bearish research notes from Morgan Stanley semiconductor analysts, I told my TAZR Trader members that the Philly SOX Index could drop another 6.5% to its 50-day moving average.
The next day, the SOX fell 5% and Lam dropped from $213 to under $195. On that day we bought more NVDA, also near $195.
But I decided to wait on the Lam after reading some of the commentary from the Morgan Stanley analysts about their downgraded look on several companies. Here's a good summary of what they believed...
"We think now is the time to reduce exposure to Nand (flash memory) and Asian semiconductor names as the industry has benefited from sizable demand tailwinds and unprecedented pricing power, which we see reversing soon," analyst Shawn Kim wrote. "Given our view of the cycle, we cannot recommend the sector until the market recognizes mounting pressure on Nand prices and slowing logic-chip growth momentum in the near term."
Kim's colleague Katy Hubert specifically downgraded Western Digital (WDC) to equal weight from overweight, based on her expectation that prices of Nand flash-memory chips are peaking and could fall as much as 15%.
This in turn impacted Lam because they make the equipment that supplies WDC and other flash memory makers like Micron .
And by December 4, Lam came into my buy zone near $180 and we picked up another starter position because I don't believe the strength in technology and semiconductor markets is over.
Strong Growth Estimates Persist in a Powerful Cycle
To wit, none of the estimates for Lam have softened the least in the past week. In the midst of its Q2 for fiscal year 2018 (ending in June), Lam is projected to see 28.8% top line growth to $10.32 billion. And the bottom line is expected to deliver 47.7% growth.
This year's $14.75 EPS puts the stock's P/E under 13X, which is about in line with the peer group which includes Applied Materials .
So what makes me believe that strong double-digit sales and earnings growth will meet analyst forecasts and be maintained into next year?
For me, it's all about what I call the "tech super cycle" where new innovation-based industries and companies are being born every year that are in turn giving birth to others.
For instance, did anyone predict 5 years ago that NVIDIA would explode from a chip-maker for gaming with revenues of $4.3 billion to a provider of AI technology for driver-less cars, data centers, scientific super computers, machine learning robotics, and cryptocurrency mining that is poised to rake in $9.5 billion this year?
Of course not and that's why you could still buy the stock under $30 when I first wrote about it as a Zacks #1 Rank in January of 2016. Today I'm buying NVDA shares at nearly 50X forward EPS because they are growing their cloud/data center business at over 50% per year and this is expected to continue for 3 more years.
That is the power of the "exponential technology" imperative I learned about from futurists like Ray Kurzweil of Google and Peter Diamandis of the X-Prize Foundation.
Want a glimpse into the next 5 years of Cooker's Tech Super Cycle?
How about this research from Bank of America: Augmented Reality companies realized only $5 billion in sales in 2016 for this revolutionary technology, but the engagement and R&D is expected to grow at over 125% per year to hit $160 billion in 2020.
The generic drug industry has been one of the toughest to compete and survive in lately and today's Bear of the Day, Mallinckrodt PLC , is another prime example.
The now $2 billion Dublin-based maker of specialty pharmaceutical products and medical imaging agents has fallen nearly 60% this year and last month's quarterly report did not help the outlook.
The company reported adjusted Q3 earnings of $1.97 per share, down from the year-ago figure of $2.04 due to continued pricing pressure within the Specialty Generics segment. Net sales in the quarter came in at $793.9 million, down 10.5% year over year.
Mallinckrodt reports results under two segments - Specialty Brands and Specialty Generics.
Sales at the Specialty Brands segment were $591.4 million, down 6.6% from the year-ago quarter. Acthar, Mallinckrodt's largest product, garnered sales of $308.7 million, down 5.6% due to volume declines.
Mallinckrodt is experiencing an industry-wide issue where an increasing number of written prescriptions are going unfilled. The impact to Acthar sales increased at the end of the quarter. Sales of the drug are expected to be down sequentially as well.
Inomax, its second-largest product, generated sales of $125.7 million, down 0.9%. Ofirmev sales dipped 0.3% year over year to $75.4 million while sales of the Therakos immunology platform were $55.3 million, up 1.5%.
As expected, weakness in the Specialty Generics segment continues due to competitive pressure. The segment recorded sales of $189.1 million, down 21.1%.
Attempting to Right the Ship
Expenses were also down, but not as much as sales. Adjusted selling, general and administrative expenses in the reported quarter decreased 18.7% to $197.5 million. Meanwhile, research and development expenses declined 12.4% to $59.5 million.
Mallinckrodt is currently streamlining its business with a renewed focus on its specialty pharmaceutical business after having sold its Nuclear Imaging business.
The company also sold its Intrathecal Therapy business. The acquisition of hemostasis drugs - Recothrom Thrombin topical (recombinant), PreveLeak and Raplixa (fibrin sealant) - from The Medicines Co. (MDCO) has strengthened Mallinckrodt's growing hospital portfolio.
Earlier in the month, Mallinckrodt announced that it will acquire a clinical stage biopharmaceutical company Ocera Therapeutics, Inc. Ocera's experimental product OCR-002, an ammonia scavenger, is being evaluated for the treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease.
The candidate is currently in phase II. Mallinckrodt will discuss with FDA to confirm the regulatory pathway to gain FDA approval and subsequently launch the IV formulation, expected by 2022, and the oral formulation, expected by 2024.
Generics in the Cellar
The Generic Drugs industry is in the bottom 14% of all Zacks industries by virtue of aggregate earnings momentum. With 22 stocks in that industry, three are Zacks #4 Rank (Sell) and three are Zacks #5 Rank (Strong Sell).
3 "Internet of Things" Stocks to Buy Now
One of the strongest corners of the market this year has been the semiconductors industry. Throughout the chip-making space, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable "Internet of Things" (IoT) devices.
For those that don't know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon's (AMZN) Echo "smart speaker," wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the "Internet of Things" )
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. With that said, we've found three already-strong stocks that are looking to benefit even more from further IoT growth.
1. Texas Instruments
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company's IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories.
In its most recent earnings report, Texas Instruments saw growth of 17% in its Embedded Processors unit, while segment operating profit climbed 45%-and that's not to mention that TXN once again surpassed our consensus estimates for earnings and revenue. Texas Instruments is currently a Zacks Rank #1 (Strong Buy), putting it at the top of the "Semiconductor - General" group, which is currently in the top 1% of the Zacks Industry Rank.
2. Vishay Intertechnology
Vishay Intertechnology is a global manufacturer and supplier of discrete semiconductors. The company has a broad portfolio of unique passive and active solutions that are tailored to the "things" being controlled in the IoT. Vishay markets its portfolio to manufacturers of everything from biometric monitoring systems to fitbands and smart appliances.
The stock is currently a Zacks Rank #2 (Buy) and has an "A" grade for Value. VSH has a P/E ratio of 14.89, as well as a PEG ratio of 0.72 and a P/S ratio of 1.23-all figures that suggest its shares are undervalued. Also, based on our current consensus estimates, we expect to see Vishay post EPS growth of 66% and sales growth of 12% for the full fiscal year.
3. Marvell Technology
Marvell Technology is a leading designer, developer and supplier of mixed-signal and digital signal processing integrated circuits. The company's "EZ-Connect" platform is used by a variety of global customers in the home automation, wearables, automotive, and industrial industries. MRVL is currently a Zacks Rank #2 (Buy).
Marvell is an exciting growth pick, as the firm is expected to expand its EPS figures at an annualized rate of 16% over the next three to five years. The stock also has a PEG ratio of just 1.13, so investors are getting a nice price for that earnings growth. Marvell also operates with a better-than-industry-average net margin of 16.5% and RoE of 12%, so investors can trust that the firm operates efficiently and delivers value to shareholders.
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.
The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
Want more stock market analysis from this author? Make sure to follow @ Ryan_McQueeney on Twitter!
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.