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You might call them “ghost stocks”.
They are those issues that seem to be coming back from the dead.
Generally, in a new bull market, which we are in now, the idea is to focus on the new leaders. They are stocks unsoiled by the prior bear market of 2000 to early 2003.
However, there are instances, when, due to the business cycles of various industries, certain stocks will rebound strongly and provide excellent profits for investors sharp enough to spot them and courageous enough to invest in them.
What eSignal subscribers should be looking for when searching for these “ghost stocks” are that the:
- Industry group is on the rebound
- Company is a major player in the group
- Potential for big earnings rebounds
- Stock’s price is in an up trend
- Stocks have good institutional following
Two industry sectors that were decimated in the prior bear market were the semiconductor and telecom stocks. There were others, of course. As the market has improved and the economy has picked up, the outlook for those two industries is much brighter.
In the semiconductor group, a “dead” stock that could be resurrected is Micron Technology Inc. (MU). Some others are Qualcomm Inc. (QCOM), Advanced Micro Devices Inc. (AMD) and Xilinix Inc. (XLNX).
Micron peaked out at $97.50 in June of 2000. It sank to as low as $6.60 by February of 2003 -- a 93 percent dive...ouch! Since then, the stock has worked its way back to $16.60 as of mid-February of 2006. That is an appreciation of 161 percent during the past three years, or an average annual return of 54 percent. Not bad for a “dead stock.”
Micron makes semiconductor memory products. To reduce its exposure to the commodity memory market, the firm is producing imaging chips for a wide variety of markets. It is trying to diversify its product line to avoid price pressure in the commodity memory market. Micron has been cutting costs by trimming its labor force and operating its plants more efficiently.
This fiscal year, ending August 30, 2006, analysts expect Micron’s earnings to climb 77 percent to 48 cents a share from a weak 27 cents a share in fiscal 2005. Looking out to fiscal 2007, they project a big 118 percent surge in profits to $1.04 a share.
Key fund buyers of Micron recently were 4-star-rated Legg Mason Opportunity Prime Fund, which picked up 2.7 million shares, and 5-star-rated Waddell & Reed Science and Technology Fund, which added 738,000 shares.
In the telecom sector, Agilent Technologies Inc. (A) looks poised to make a comeback. The firm has interest in communications, electronics and healthcare. The stock soared to a peak of $153 in the 2000 bull market run. Afterwards, it tumbled to $10.50 by October of 2002.
Agilent has now worked its way back to $34.80 and is currently in an up trend and poised to break out from a three-month base with upside resistance at 36. For the fiscal year ending October 2006, Agilent’s profits are projected by The Street to climb 113 percent to $1.49 a share from 70 cents in the prior fiscal year.
The company is expected to benefit from more focus on its measurement business and the sale of its semiconductor products division. Profits for the upcoming fiscal second quarter ending April 30 should surge 84 percent to 37 cents a share from 20 cents a year ago.
Five-star-rated Calamos Growth Fund was a recent buyer of 2.5 million shares of Agilent. The largest fund holder of Agilent is 5-star-rated Vanguard PrimeCap fund with a 2.4 percent stake.
Another telecom “ghost stock” that could come back to life is Comverse Technology Inc. (CMVT), which tumbled from $124 in January 2001 to $6 by October 2002. It has since climbed back to $28.20 and is trending higher now.
Comverse’s profits for fiscal 2006 ending January 30 should leap 99 percent to 61 cents a share from 31 cents a year ago. For fiscal 2007, net should rise 39 percent to 86 cents a share. Four-star rated Brandywine Fund was a recent buyer of 1.3 million shares. It now has a big 1.8 percent stake in Comverse. |
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