It's renovation time at the Tech Five & Dime. I'm adding six new semiconductor stocks trading for under $10, dropping four and rearranging the store inventory into four categories: computer hardware; semiconductors and electronics; software and services; and telecommunications.
Applied Micro Circuits (AMCC) designs technology products for storage equipment. Shares are 75.5% undervalued and the weekly chart profile is positive. My quarterly value level is $2.41, with a quarterly risky level at $3.18. Asyst Technologies (ASYT) develops hardware and software automation systems for semiconductor and flat-panel display manufacturers. Shares are 53.7% undervalued and the weekly chart profile is positive. My monthly value level is $4.61; my semiannual risky level is $6.23. Conexant Systems (CNXT) designs semiconductor solutions for broadband and enterprise networks, and for the digital home. Shares are 68.3% undervalued and the weekly chart profile is positive. My monthly value level is $1.65, with a semiannual pivot at $1.88. The semiannual risky level is $3.33. Emcore (EMKR) makes semiconductor-based components for the broadband, fiber optic, satellite and wireless communications markets. Shares are 72.9% undervalued and the weekly chart profile is positive. My quarterly value level is $5.34, my monthly pivot is $6.08 and my monthly risky level is $6.30. JDS Uniphase (JDSU) designs products for fiber-optic communications. Shares are 75.3% undervalued and the weekly chart profile is positive. My monthly value level is $1.58, my quarterly pivot is $2.10 and my quarterly risky level is $2.51. Sanmina (SANM) is an electronics contract manufacturer that makes wireless and wireline switches, computers and set-top boxes. Shares are 51.1% undervalued and the weekly chart profile is positive. My monthly value level is $3.65; my quarterly risky level is $5.35.
New Merchandise in the Semis Aisle
The Winners and LosersThese stocks have moved up or down by at least 20% since being put on the shelves:
No Longer in StockI've taken these companies off the store shelves: Ditech Communications ( DITC), Sonus Networks ( SONS) and Tut Systems ( TUTS). I wouldn't add to positions on these names; sell them on strength. Intellisync ( SYNC), one of our biggest winners, will also leave the store. After the close on Wednesday, Nokia ( NOK) announced that to compete with Research In Motion's BlackBerry, it's paying $430 million to buy Intellisync. Intellisync provides wireless email and data services, including software that synchronized Palm handheld devices with computers.
|The Tech Stock Five & Dime |
|Company Name||Date Posted||Price At Close||Price On 11/15/2005||% Gain /Loss||Under Valued||12x3 Stoch||Value Level||Pivot||Risky Level|
|Gateway (GTW:NYSE)||9/21/2005||$2.60||$3.04||16.92%||70.6%||RM||2.80 Q||5.47 Q|
|Immersion (IMMR:Nasdaq)||10/14/2005||$7.12||$6.24||-12.36%||67.7%||OB||5.16 M||6.32 Q||10.44 Q|
|SunMicro (SUNW:Nasdaq)||9/21/2005||$3.94||$3.68||-6.60%||3.4%||DM||3.51 M||3.66 Q||5.14 Q|
|Semiconductors & Electronics|
|SkyWorks (SWKS:Nasdaq)||9/21/2005||$6.84||$4.84||-29.24%||68.8%||OS||5.70 M||7.74 Q|
|Software & Services|
|Actuate Corp (ACTU:Nasdaq)||8/22/2005||$2.38||$3.53||48.32%||52.5%||OB||2.14 Q||3.17 Q|
|BEA Systems (BEAS:Nasdaq)||9/23/2005||$8.43||$9.25||9.73%||42.6%||RM||8.40 Q|
|Entrust (ENTU:Nasdaq)||9/21/2005||$5.51||$4.47||-18.87%||42.3%||DM||3.76 Q||5.68 Q|
|Extreme Networks (EXTR:Nasdaq)||10/14/2005||$4.38||$4.85||10.73%||74.4%||RM||3.20 M||4.75 S||6.21 Q|
|Interwoven (IWOV:Nasdaq)||9/6/2005||$8.40||$9.05||7.74%||69.1%||OB||7.63 Q||10.17 Q|
|Micromuse (MUSE:Nasdaq)||9/6/2005||$6.96||$7.38||6.03%||53.0%||RM||6.84 M|
|RealNetworks (RNWK:Nasdaq)||9/6/2005||$5.41||$8.05||48.80%||54.6%||OB||5.61 M|
|Sapient (SAPE:Nasdaq)||9/23/2005||$6.37||$5.98||-6.12%||39.1%||RM||6.50 M||9.97Q|
|Stellent (STEL:Nasdaq)||10/14/2005||$8.67||$9.79||12.92%||50.5%||OB||7.85M||9.03 Q||11.20 Q|
|Intellisync (SYNC:Nasdaq)||9/7/2005||$4.05||$5.54||36.79%||44.0%||OB||4.62 M|
|WebMethods (WEBM:Nasdaq)||9/23/2005||$6.45||$7.50||16.28%||40.6%||RM||6.38 Q|
|Ciena (CIEN:Nasdaq)||8/22/2005||$2.11||$2.58||22.27%||74.2%||RM||2.13 Q|
|Lucent Tech (LU:NYSE)||8/22/2005||$2.87||$2.72||-5.23%||56.2%||DM||2.68 M||4.47 Q|
|Terayon Comm (TERN:Nasdaq)||9/7/2005||$3.40||$2.37||-30.29%||53.7%||DM||3.18 M||4.16 Q|
|Tellabs (TLAB:Nasdaq)||9/21/2005||$9.50||$9.70||2.11%||40.6%||RM||10.16 M||11.11 Q|
|Westell (WSTL:Nasdaq)||9/21/2005||$3.64||$4.47||22.80%||26.7%||RM||3.56 Q||5.69 S|
|Source: Global Market Consultants|
Reading the TableTo qualify to be added to the shelves of the Tech Stock Five & Dime, a stock needs to be at least 40% undervalued according to my model. 12x3 weekly stoch: This is the 12x3 weekly slow stochastic reading. A stochastic is a measure of momentum on a scale of zero to 100. A reading of more than 80.0 is overbought (OB), and a reading below 20 is oversold (OS); RM indicates a rising reading, above 20 but below 80; and DM indicates a reading that is declining and below 80 but above 20. It's a sign that a stock has lost its momentum status when the stochastic falls below 80 after having been above it. Five-week MMA: The five-week modified moving average, calculated from a simple moving average updated each week by taking the prior sum, subtracting out the prior five-week MMA, adding in the latest weekly close and dividing by five. The MMA is slower than a simple moving average. It's considered a support or resistance (a positive if above, a negative if below). Value levels, risky levels and pivots: A value level is a price at which buyers should emerge on share-price weakness, while a risky level is a price at which sellers should reduce holdings on share-price gains. A pivot is a value or risky level that was violated during its time horizon, and which acts as a magnet during the remainder of that time horizon. These levels are calculated in weekly, monthly (M), quarterly (Q), semiannual and annual (A) time horizons, on the basis of the past nine closes in each time horizon. My theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock.
Guidelines for Price LevelsLow-priced stocks, those trading for less than $10, are particularly attractive to individual investors because it's easier to establish a large position in these stocks with less capital. But before you invest in any of the stocks that fall into any of the four categories I've outlined, please consider the amount of risk you can tolerate, and be aware that all of the stocks in these groups should be considered speculative. Be aware that my model indicates that it's most prudent to add to positions at a value level and to book profits on strength to a risky level. For example, a trader who buys at a value level should consider selling at the nearest pivot. Options on Survival: This group includes stocks trading in the $1-to-$3 range. Stocks in this category are option plays on the company's survival. Buy them only if you can afford to lose 100% of the investment, because stocks become worthless at bankruptcy, which is a high risk for companies with stocks in this price range. Margin Threshold Stocks: Stocks in this group trade for less than $5 but more than $3. Many brokerage firms will not allow their clients to buy stocks trading for less than $5 on margin. Keep in mind that these stocks trade below $5 for a reason; like their Options on Survival kin, their companies are at risk for bankruptcy. However, unlike members of that lower-priced group, stocks that trade between $3 and $5 have a better chance of survival. Five & Dimers: This class of stocks, those that trade between $5 and $10, tends to stay in that range. Many mutual fund managers, by their fund guidelines, can't own stocks trading below that upper level. If there is a reason for a stock to fall below $10, expect to see selling pressure from the mutual fund managers. Once the selling subsides, and if the stock stays above $5, some speculation is merited in stocks that still have positive profiles. I believe a good strategy for members of this group is to buy tech stocks trading for less than $10, but to keep a sell-stop in case the stock breaks below $5. Stocks from the Five & Dime should be considered speculative. But they can be rewarding if you find the ones that can get back above $10 before they break below $5. A positive chart profile is a good indicator for stocks trading in this range. Stocks Below $1: Often called penny stocks, stocks that have drifted down from higher levels to become members of this group become subject to delisting. I will not comment on these, or on stocks trading on the bulletin boards or Pink Sheets because they are so volatile, illiquid or hard to research, if not all three.
My Keys to TradingWeekly Chart Profile: A stock with a positive profile has a weekly close above its five-week modified moving average with a rising 12x3 weekly slow stochastic, which is a measure of momentum on a scale of zero to 100. A reading below 20 is oversold, while a reading above 80 is overbought. Fair value: I calculate this for every stock. It's the price that a stock can trade at in a perfect world. This is not a price target; it is based upon the company's past data and its projections for the future, including its trailing 12-month EPS, the forward 12-month estimated EPS and the yield on the 30-year Treasury. How these data points are weighted depends on an historical analysis of the stock's price history, with some 17 other variables influencing the calculation on the basis of its sector and industry group. My model knows that tech stocks tend to trade at high P/E ratios.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Asyst, Emcore, Immersion, Stellent, Actuate, Interwoven, Intellisync, Terayon, Westell, Entrust and WebMethods to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.