Cart (0)
business newsTech Sector: The Company With the Best Enterprise, Product Value
Since you can't own them all, are you better off with PMC Sierra, Max Linear, or Tekelec? Sean Udall answers readers' questions about this and more.
PRINT
I invite you to take a 14-day free trial to TechStrat and if you have any questions in the technology sector you can send them to tech-strat@minyanville.com and I'll do my best to answer them in the TechStrat mailbag. I also welcome any feedback you might have to that email address.
Rob writes:
Going with the theme that you can’t own them all, which do you feel offers better enterprise and product value here: PMC Sierra (PMCS), Max Linear (MXL) or Tekelec (TKLC)?
Any input would be greatly appreciated.
Love the service,
Rob
Rob,
Thanks for the question and kind words.
If I'm interpreting your question correctly (enterprise and product value) -- the answer would be PMC Sierra. It has the larger product base and a deeper pool of engineering and R&D. Moreover, it added a host of smart acquisitions during times when the rest of the world wasn't buying anything. At some point this should pay off handsomely and it might just start happening this year.
If the question was which of these three has the most potential upside from current levels, I would go with Tekelec. It was severely undervalued in the $11-12 range so at current levels it's that much more so. My biggest concern with Tekelec is a CTV- or GSIC-type bid here at these low levels.
With Max Linear, I'm simply waiting for the price action to stabilize. In our post-2007 no-uptick world, these small/mid cap names can trade far more distressed than even formerly irrational price levels -- especially certain post-IPO names. It's now under 2.5 times net cash and I hit this name after the six-month post-lockup period. Usually that is the one that puts the most pressure on the stock. The way Max Linear is acting, it must be in or approaching another post-lockup period.
Larry writes:
Do you agree with Stifel’s assessment (Click here to download research note) of the weakness in the “optical” space as evidenced by EXFO Inc (EXFO)?Larry,
Well I do agree with their long-term assessment as they are bullish and still holding onto a high $20s target. My long-term target is well higher but Stifel is going the right way in my view.
As for the short term issues, they essentially translate EXFO's weakness is due to JDS Uniphase (JDSU) lowered estimates. Also, "optical communication investors" will paint the group even more negative short term.
My take is that EXFO's ramifications are more complex:
1. First and foremost -- I don't think there is actually a class of "optical comm investors."
2. JDS Uniphase's test and measurement division might mirror some of the weakness that EXFO just experienced -- though we do see share shifts in this space and JDS Uniphase has been a net share gainer for years.
Also, JDS Uniphase is a lot more than test and measurement at this point. I can't say for certaint that EXFO's weakness means JDS Uniphase is going to also miss/guide lower. Though it does increase the odds.
3. Each successive piece of bad news will have less impact on the group (optical stocks). Friday was a good example as there were a couple optics names that traded higher (Oplink (OPLK) and Neophotonics (NPTN)) and only JDS Uniphase was considerably weak.
4. We are in the normal seasonal weakness for the group. That is why I've only been buying on weakness and not strength. However, at some point, someone else besides me will wake up and say -- you know what, these names (companies) are still showing stronger than normal seasonality.5. I don't think EXFO's weakness is related to Finsar’s (FNSR), they have completely different end markets.
6. EXFO has just come off two monster quarters, so some softness was not a huge surprise. And like many stocks in this group, it is a lumpy reporters. The reason so many of the stocks in this group are so cheap on relative valuation is because they have not been linear/sequential growth stories for a decade or more. We may be entering a period where the huge disparity of results from quarter to quarter will be lessening.
7. Lastly, it's a matter of price compared to annual estimates and yet many of these names have given up a huge portion of gains on the fears of a one- to two-quarter slowdown -- not a full YoY slowdown. I don't see too many calling for huge declines in annual or multi-year growth rates for the multiple catalysts driving these stocks.
For much more from Sean Udall take a FREE 14-day trial to TechStrat.
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
