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5 tech stocks to ride the rally
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M-Systems Flash Disk Pioneers: Here's the story behind this stock, up 13% from Oct. 12 through Nov. 15: The company has just made an acquisition, Microelectronic Espanola, completing the company's memory-card portfolio and enabling M-Systems to address the market for embedded cards, for semi-removable cards and for removable cards. That gives the company products for just about anyone manufacturing multimedia phones, MP3 players, and GPS and portable electronic game machines. Not that the Israeli company was doing so badly before the deal: On Nov. 3, M-Systems reported third-quarter earnings of 34 cents a share, seven cents above the Wall Street consensus. Revenues climbed 55% and beat estimates by 13%. For all of 2005, M-Systems increased projected earnings per share to $1.08, up from prior guidance of $1 a share. The stock trades at 29 times projected 2005 earnings per share. Wall Street projects 67% earnings growth for M-Systems Flash Disk Pioneers (FLSH, news, msgs) in 2005 and 34% in 2006. Our StockScouter does not rate overseas companies.
Standard Microsystems (SMSC, news, msgs): Standard Microsystems is set to go from strength to strength. In the August quarter the company delivered earnings of 25 cents a share, 32% above projections. At the same time the company guided Wall Street to expect revenue of $81 million to $86 million in the November quarter -- not the $77 million that Wall Street had projected. Earnings, the company said, would be 31 cents to 37 cents a share, well above the Wall Street consensus of 21 cents. The company's March acquisition of OASIS Silicon Systems pushed the company's sales of input/output controllers, USB devices and other networking solutions to second place. Standard's sales of multimedia connection and networking solutions into the automobile sector now make up 51% of revenues. Wall Street is projecting earnings growth of 224% in the fiscal year that ends in February and 23% in the following fiscal year. The stock currently trades at 26 times projected fiscal 2006 earnings per share. Our StockScouter rates the shares a 7 out of a possible 10.
And, as always, I have two "exclusive" picks for the readers of CNBC.com on MSN Money. In this case, they are two tech stocks for the tech rally for those investors who'd like to buy conservative fundamentals with their momentum.
Microsoft (MSFT, news, msgs): The parent of this site has kept pace with the small caps in the early stages of this rally, climbing 13% from Oct. 12 through Nov. 15. I think this is more than end-of-the-year momentum, too. The stock now trades for just 23 times trailing 12-month earnings per share and 20 times projected earnings for the fiscal year that ends in June 2006. As the stock's valuation has fallen, ownership of the shares has passed from growth investors to value investors. Those new owners are looking ahead to the huge product cycle beginning with the November launch of the Xbox 360 and continuing into next year's release of the new version of Windows. Our StockScouter rates these shares a 6 out of a possible 10.
Broadcom (BRCM, news, msgs): Broadcom shares, up 5% from Oct. 12, have done all right in this rally, and the stock is testing recent highs, but the real story for Broadcom is long-term rather than short. With leadership in the chip sector increasingly passing to the consumer-media chip makers from PC chip leader Intel (INTC, news, msgs), Broadcom is increasingly a must-own stock for technology investors (along with Texas Instruments (TXN, news, msgs) I'd argue.) The company's business is about equally divided among chips and chip sets for broadband (34% of sales), mobile and wireless (27%) and networking (39%). Broadcom's strength in each of these areas is its proven ability to get the functions needed by the next generation of consumer products on highly integrated chipsets that are smaller and cheaper than competitors'. Earnings growth, Wall Street projects, is set to climb to 21% in 2006, up from 14% in 2005. The stock currently trades at 33 times projected 2005 earnings per share and 27 times projected 2006 earnings. Our StockScouter rates the shares a 9 out of a possible 10.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned of controlled shares in the following equities mentioned in this column: Microsoft. He does not own short positions in any stock mentioned in this column.
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