Freescale Is Crushing Short Sellers

NEW YORK (TheStreet) -- Shares of chip maker Freescale Semiconductors (FSL) ripped higher last week and hit a 52-week high on Monday. Over the past month, they have gained about 50%.

The question shareholders are asking now is if this is the time to ring the register and take profits.

Some profit-taking may be warranted, but based on earnings estimates, you want to maintain exposure because the least path of resistance is upward. Freescale is now profitable on a non-GAAP basis, although it posted a net loss for its most recent quarter, meaning the stock isn't really undervalued.

FSL Chart

Over the last month, the shares have moved from $15.30 to almost $23. I think Freescale will test the $30 level in the next 12 months. Here's why:

Earlier this month, Freescale announced a secondary offering of 35 million shares at $18.50 and underwriters have the option to purchase 5 million more. The secondary offering represents about a 15% dilution for current shareholders.

More often than not, dilution is a bearish event. In Freescale's case, though, it's different; the company is using the proceeds to reduce debt. The company will pay all of the 10.125% senior subordinated notes due in 2016 and some of the 8.05% senior unsecured notes due 2020.

The savings gained from the reduction in interest expenses should more than offset the impact of dilution. The lower debt load will go a long way toward cleaning up the balance sheet. The ability to sell shares at $18.50 also demonstrates the value of the stock and why I think investors shouldn't be quick to take all the money and run. 

If you liked this article you might like

Hot Solar Energy Companies to Watch

NXP Could Be Attractive Target on its Own, Cramer Says

Jim Cramer -- Buy Broadcom on a Pullback

Here's a Crazy Reason Why Your Future Car Might Not Need a Steering Wheel -- Tech Roundup

Freescale Semiconductor (FSL) Flagged As Strong On High Volume