AUSTIN, Texas (TheStreet) -- I know, Greece is threatening to default on their debt and leave the European Union. Spain's unemployment rate is nearing 25% and its banks are in bad need of a bailout of some sort. The euro is hitting a new low against the dollar almost daily.While Europe burns, here in the U.S. we reported a jobs number last week that was dreadful. The markets are now testing their 200-day moving averages, while the bond market roars and interest rates are printing historic lows. Today, I am going to talk about my favorite technology stock. Yes, really! No, it is not Facebook ( FB). I wrote about Facebook in a May 23 article when I said "Wait Until Next Year." No, I am not crazy either. While I remain very cautious on the market right now, I still continue to find attractive individual opportunities, even in the tech sector! The stock I am going to write about today is best suited for aggressive to moderate growth portfolios. Before I get to my pick, let me explain a little bit about how I evaluate stocks. I publish a weekly newsletter along with doing a daily radio show on the market. In addition to this, I have been a professional money manager for the last 18 years. I publish my aggressive model portfolio every week for all to see. As of Friday, my aggressive portfolio was up 8.3%, while the S & P 500 is up 1.8% year-to-date. My aggressive portfolio currently has 25 positions in it, and it is fully invested. I currently have two hedges in the portfolio. They are inverse exchange traded funds on Europe and the Emerging Markets. I wrote about them last week in an article called "New Stock, ETF Leaders to Weather Europe's Storms". I added one more inverse position on China this past week to the portfolio. I have nailed some big winners like Apple ( AAPL), +181%, Dollar Tree ( DLTR), +145%, Priceline ( PCLN), +95.7%, Alexion Pharmaceutical ( ALXN), +64%, AutoZone ( AZO), + 61%, Nu Skin ( NUS), +48%, etc. in this portfolio over the last year. You can view a complete list of the portfolio and its history at my Best Stocks Now newsletter page.
I am neither a day trader, nor a buy and holder. I am in between these two. I like to rotate with the market. I wrote about how to avoid crashing as the market rotates" three weeks ago here on TheStreet. I also wrote an article last November, calling Apple the cheapest growth stock in the entire market. The stock was trading at $376.12 at the time. I showed my calculations on arriving at an $818 target price in the article. The same formula that I used can be applied to Apple's numbers today to calculate a current target price for the shares. Needless to say, Apple soared to $644 over the next five months for a gain of 71.2%. I caught the whole move and sold half of my position right around $600. I still own the other half. I wrote about Dollar Tree last November when the stock was trading at $81.66. The title of the article was "Look for Dollar Tree to Double Again." I went through the same valuation exercise that I performed on Apple. If you have trouble doing the valuation work on stocks, you may want to check these articles out. I also spent a few years as a stock analyst, writing up research reports on various companies. Dollar Tree continues to hit new highs and today it is trading at just over $100 per share. I now have a 145% gain in Dollar Tree, and I continue to own it. I talked about how to find stocks like Dollar Tree in another article that I wrote earlier this year. You may want to check it out. I am neither a value investor nor a momentum investor -- I am both. In very simple terms, value investors usually could care less about momentum (performance), and momentum investors usually don't give a hoot about value. Over the years, I have found flaws in both of these styles of investing. I have seen way to many value traps over the years, and I have seen way to many high flyers crash and burn. I like to combine performance with value. The best way I can show you what I mean by this is to give an example. I stated earlier that I was going to feature my favorite tech stock at the current time. So, here we go...
Austin, Texas based Cirrus Logic ( CRUS) develops and sells high-precision analog and mixed signal integrated circuits for audio and energy markets worldwide. Its audio products are used in smartphones, tablets, home theater systems, blue-ray players, and many other consumer electronics applications. The stock is a small-cap, and as I stated earlier suitable for investors seeking aggressive growth amongst a well-diversified portfolio. I generally like my individual positions to be about 4%-5% of my overall portfolios. Let's first begin with the performance of the stock over the years: As you can see, the stock has delivered some very stellar returns over the years to its shareholders. The stock has clobbered the performance of the S&P 500 over the last 1, 3, 5 and 10 years. Compare these returns with some of the big, old, stodgy technology stocks like Cisco ( CSCO), Microsoft ( MSFT), and Intel ( INTC). I wrote about avoiding such big, widely held duds in another recent article that I wrote here on The Street. I was also interviewed by Joe Mont, a writer for The Street back in May of last year on this subject. At that time, I mentioned three stocks. They were Dollar Tree, AutoZone and Priceline.com. Those stocks have soared since that interview. Maybe that is why I am now writing for The Street. When I compare the performance of Cirrus against almost 2,800 stocks, it scores a performance grade of "A-". As I mentioned earlier, I like to combine performance with value. Then we have the best of both worlds. It is only appropriate that we should next look at the valuation for Cirrus Logic. As you can see, the stock is currently trading at just 12.7 times next year's earnings estimates. The consensus five-year growth rate expectation among analysts is 20% per year for the next five years. It should be noted that Cirrus has been growing its earnings by an average of 58% per year over the last five years. No wonder the stock has done so well! If Cirrus can hit their consensus estimate of $2.16 per share next year, and indeed grow their earnings at an average clip of 20% per year over the next five years, then the company would be earning $4.54 five years from now. Using a reasonable multiple of 12.5 on those earnings, I come up with a five year target price of $57 per share.
I like to buy stocks that have at least 80%-100% upside potential over the next five years. Cirrus obviously meets these criteria with flying colors. In fact, Cirrus earns a value grade of "A-." Also, I like five-year target prices. I explained the reason why in my Apple article mentioned above. It helps investors keep their eyes on down the road instead of looking their hood ornament. Cirrus is a good example of a stock that has both performance and value at the current time. When I add these two together, I come up with a stock that earns a current overall grade of "A" and is ranked number 24 out of 2,787 stocks overall.
Just because Cirrus has both performance and value right now, this is still not a guarantee that this will turn into a money maker for you. It does put the probabilities in your favor, however. Once I buy a stock, I look at the chart every day. I look at the stocks overall ranking every day. I like to stay in stocks that remain within the top 200 or maintain an overall grade of "A-" or better. As long as that stock continues in a nice uptrend and keeps its grade of "A-" or better, I stay with it. Hopefully this will be all the way up $57 per share. Oh yeah, one last thing, the stock also has a very good chart right now: At the time of publication, Bill Gunderson was long DLTR, AAPL, CRUS, AZO.