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stock pricing and the electronics and political horizons ?3
09:01 27-Feb-17
There's growing evidence that recent advances in various
technology niches, such as wireless charging, sensors,
non-volatile memory and new
battery types will combine over the next few years to lift
the current tech malaise. Looking further out, the recent
synthesis of borophene and subsequent
discoveries related to it could represent the biggest
advance for semiconductors in a generation, making the upturn the
beginning of a new tech super-cycle. In a nutshell, borophene has
the potential to help ease the transition of semiconductors into
flexible devices while simultaneously making their production far
cheaper.
While it's too early to make any attempt at predicting exactly
how all the pieces will come together, I'll happily use those
thoughts as a preface to an update on the pricing and outlook for
several stocks:
- LPL: shares have dropped recently, which is no
surprise, but below $12.50 they represent about a 7% pre-tax
yield. As mentioned previously, Chinese competition will need
to be monitored. However, with new AMOLED TV sets are hitting
stores over the next two months, and new production coming
online starting in the second half of the year, I like this as
an entry point.
- MX: the new TVs should be a good
thing for MagnaChip. MX doesn't have the April dividend
catalyst that LPL does, but MX should do better over a longer
period as it continues to optimize
and improve
its businesses. Furthermore, unlike LGD, it actually benefits
from the rise of Chinese display manufacturing. MX shares have
been volatile, and I find myself willing to nibble below $7.50
and ready to become more enthusiastic below $7.
- IDTI: has been less volatile than the other tickers that I've mentioned so far, but I also seem to have been right to be unwilling to chase the stock, even though it sits at he intersection of most of the developments that I've mentioned. New work in wireless charging is particularly noteworthy, as is interest from Apple. I continue to think that new memory and data center developments will become even more lucrative, and the latest IDT acquisition seems to confirm this viewpoint. None of this was factored into IDT guidance, but management guessed at $1-3 of incremental content from it's unique memory interface solutions. That said, it needs to be kept in mind that business probably won't start to firm up until the second half. Thus I remain cautious about entry points, but progressively more willing to buy any further dips.
- MVIS: is another stock that has been retreating from
recent highs. We've know about Microvision's sensing
plans for quite a while, but Sony has finally announced
a €1499 price tag and spring availability in Japan and Europe
for the Xperia Touch projector at Mobile
World Congress. With that price, I think the device will
be limited mainly to business use. Nonetheless, it would be
good to see the renewal of a revenue stream from Sony, and I
hope to get confirmation from MicroVision along with the
earnings report in the next couple of weeks.
- RESN: I was waiting for the details in the
8-K to write more about Resonant, which sold 1,626,898
units for $7.5M or $4.61 per unit. Each unit consists of 1
share and a warrant to purchase another at $8.25 within the next
2.5 years. When factoring in the warrants, this looks like a
somewhat worse deal than the $4.20 per share placement, so I
hope to see no more financing with similar terms. Even so,
given the prospect of more filters going commercial in the
near-term, I continue to think RESN is worth a GRoDT shot at
prices below $5. Longer term the development of flexible and
miniaturized connected wearable electronics should make the
complex multi-band filters that Resonant designs ever more
valuable.
- FIT: mention of wearable electronics brings me to the
sole new entry on my list. Fitbit was the short that got away
at $30 going into the 2016 CES, over a year ago. I held in the
money naked calls that wound up going out of the money, and I
was unwilling to chase the stock down even though I was
confident that special-purpose devices would give way to more
general ones. Now that the stock has lost 80% of its value from
that point, I've been looking at the other side... At $6 per
share, Fitbit has over half its value in cash and marketable
securities on the books. It won't stay that way, but I also
don't think the company is facing imminent demise. The other
point that really got my attention in the 4Q16
presentation is that Fitbit managed to get assets from
both Pebble and Vector for a song ($23M and $15M, respectively,
WITHOUT THE DEBT!) I can only hope that Fitbit got similar
terms when it purchased
Coin's NFC/EMV technology. The company's devices are
imperfect, but still show
a lead and understanding for good design. The latest
example is the
Blaze which sports multiple days of battery life, whereas
Apple's Watch can have trouble making it through the day. When
you put that record together with the resources that Fitbit has
been acquiring, I'm more than willing to wait on the next device
and give shares a chance under $6. This is all the more true
when I think about the need to innovate at larger related
companies like Garmin and Apple.
From an investing perspective, I contrast this technological potential against the potential for smaller and more rationale government, where my hopes are more conservative and short-term. There is real benefit to be had in tax breaks, for both corporations and individuals, but they need to be matched with a balanced budget. The benefits for individuals will also be gradually offset by consistently anti-consumer and divisive policies. All of this is contingent on U.S. governmental dysfunction not erupting into a full-blown reset in the short term. Viewed as a whole, the outlook and uncertainty makes me glad of my focus on undervalued income and technology.