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 I was driving down a highway in suburban Phoenix and happened to pass Motorola Inc.'s (MOT) semiconductor plant. I had seen it before, but what caught my eye was that it was no longer called the Motorola Semiconductor division.
No, the name in the front of the plant said: Freescale Semiconductor Inc. It seemed that nothing had changed, except the name. However, for alert investors, a lot had changed.
Freescale (FSL) is a 2004 spin-off from Motorola. The stock came out at 13 in early 2004 and has since climbed to 24, a big 84% appreciation. Meanwhile, parent Motorola's stock has moved up from 14 to 19, a gain of 35%. 
For eSignal subscribers, Freescale is a company that has gone public at just the right time -- the start of a new bull market and when many semiconductor stocks are now starting to advance, as business and the economy improve.
One should now be on the lookout for these "new name stocks," which, in some cases, may be spin-offs from larger firms, or initial public offerings of privately held firms, or older firms deciding to go public again.
The key is to make sure (1) they have good earnings prospects and (2) are in a strong industry group and (3) have a dedicated management looking to develop a business and not just trying to enrich itself with overly generous pay and stock options.
This bull market will bring forth some interesting, exciting and profitable names for investors. Freescale was known as Motorola's semiconductor product sector. The unit began operations way back in 1953. It has been in the forefront of some innovative industry developments, such as communications processors, microcontrollers, solid state acceleration sensors and cellular semiconductors.
The company has the largest global market share for semiconductors for auto applications and the fourth largest global market share for digital baseband semiconductors for cellular handsets. The firm, with approximately 10,000 customers, has annual sales of $5.7 billion.
FSL is poised to show strong earnings. Net for the first quarter declined 20%. Sales were up 3%, but costs increased. However, the next two quarters will be exceptionally strong. Net for the second quarter should soar 121% to 24 cents a share from 11 cents a year ago. The highest estimate on The Street is at 26 cents a share. The company topped first quarter consensus estimates. They may do it again. Profits for the third quarter should climb 36% to 26 cents a share from 19 cents a year ago.
Most importantly, FSL's stock continues to act strong and is a leader in the semiconductor sector, which has come to life in the third quarter. FSL broke out from a flat base in mid-June, leading the group. It is now in a solid up trend (see the daily chart).
There are other "new-name plays" to keep an eye on.
Zumiez Inc. (ZUMZ), a retailer of clothes for the action sports crowd who are into snowboarding, BMX and surfing, debuted at $18 in May. It is now 32.80 and driving higher. My 18-year-old son said he bought his snowboarding equipment there. The reason: It had the lowest prices. ZUMZ's profits should improve.
Silicon Motion Technology Corp. (SIMO) went public at $10.50 in June. Earnings for 2004 soared 159% to $8.4 million on sales of $68 million. SIMO's stock is consolidating between 10 and 12. A breakout over 12 could well be the signal for a move higher.
Another fashion stock doing well is Citi Trends Inc., (CTRN) of Savannah, Ga. It runs approximately 200 stores that focus on the African-American market. It plans to open 40 new stores this year. The stock came out at $14 in May. It is now 25, having broken out from a base at 19. |
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