Pixelworks Doing Quite Well

On April 16 I posted here a note on Pixelworks (PXLW) and the fact that Next Generation Equity Research had on Mar. 18 initiated coverage with a 12-month price target of $20.00, 36.2% higher than the $14.68 closing price that day.

Well, as of Friday the 23rd of April that price target had already been met and surpassed. Rather than waiting 52 weeks for the 36.2% return, those who owned PXLW on Mar. 18 enjoyed a 37.4% return in 4 weeks and 1 day.  The stock is up 21.5% from the $16.60 close on April 16, the date I noted it here.

Here are some highlights from their press release accompanying their Q1 earnings report on Apr. 19:

1.  Record revenue of $45.3 million in the first quarter increased 41% from $32.0 million in the first quarter of 2003, and increased 11% over $40.8 million in the previous quarter

2.  Record GAAP net income in the first quarter of $6.6 million, or $0.14 per diluted share, improved from $0.2 million, or $0.01 per diluted share, in the first quarter of 2003

3.  Record pro forma(A) net income of $7.0 million, or $0.14 per diluted share, increased 195% from $2.4 million, or $0.05 per diluted share, in the first quarter of 2003

4.  (A) Pro forma gross profit, income before income taxes, and net income, which differs from gross profit, income before income taxes, and net income in accordance with accounting principles generally accepted in the United States of America (GAAP), excludes merger-related and restructuring expenses, and non-cash expenses for amortization of purchased developed technology, and stock-based compensation and amortization of assembled workforce. A schedule reconciling these amounts for the three months ended March 31, 2004 and 2003 is included in this news release. Pixelworks' management believes the presentation of these non-GAAP financial measures provides useful information to investors regarding Pixelworks' results of operations as these non-GAAP financial measures allow investors to better evaluate ongoing business performance. Pixelworks' management also uses these non-GAAP financial measures internally to monitor performance of the business. Pixelworks, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

Incidentally, I noticed that Pixelworks shows up as #97 on IBD's top 100 this week.

OmniVision and the Rise of the Semiconductors

On MSN.com today, Robert Walberg contributed an article entitled "Why Semiconductors Are About To Surge".  He suggests that the semiconductor sector has been victimized by a bearish overvaluation sentiment that has perhaps gone further than the situation warrants, stating: "The stocks now seem poised for a substantial recovery."

Of particular interest to me were two paragraphs concerning Omnivision Technologies about a third of the way through the article:

John Rossi, chief financial officer of OmniVision Technologies (OVTI), [referring to continued strong growth in the handset market] confirmed as much to me the other day when he noted that business trends for his company remain very strong despite Nokia’s problems.  OmniVision makes the CameraChip, an image-sensing device used to capture images in a wide variety of consumer and commercial applications, including digital still cameras, cell phones, video game consoles and security and surveillance cameras.  Rossi noted (with some chagrin) that while OmniVision never did much business with Nokia, the overall market for wireless-chip companies remains bullish with exciting growth in the handset segment.

Just how good has business been at OmniVision?  Last quarter, the company delivered earnings growth of 216% on a 209% rise in sales.  Despite such impressive growth, the stock hasn’t done much this year.  Maybe investors are simply worried that the company’s growth rate will slow to only 150%.  After all, the summer doldrums are just around the corner.

This is the inequity in the stock market.  If one sector is perceived as overvalued and investors start cashing in their chips, even those exceptional stocks which are undervalued get dragged down with the lot by virtue of simply being in the same group.  It's "guilt by association."  It looks to me as though this is exactly what's been happening with OVTI since its enormous gap up in February, which was ignited by an earnings report that was the stuff of CEO nocturnal fantasies.  (That last line shoud be read aloud in your best Dennis Miller voice.)

Under the subheading, "5 Stocks That Should Lead", toward the end of the article, Walberg writes:  "Which stocks will lead the recovery?  Though gains should be broad-based, look for the fast growers and the industry bellwethers to assume leadership.  One such stock is OmniVision, which is well-placed to capitalize on the growth in camera phones as well as digital cameras, as it recently introduced a new 2.0-megapixel CMOS image sensor to keep one step ahead of the competition."  (Emphasis mine.)

Suddenly those two-dollar June 27.50 call options sound more fetching, don't they?  It would be nice to know whether OVTI's earnings report date falls before or after the 3rd Friday in June when the options expire.  But by the time we get a firm date, who knows but that those 27.50 calls just might be selling for $7.50 or $8.00?  Or will they be selling for a buck and a quarter?  In view of the foregoing, what do you conclude?

Oh, I almost forgot.  The other four "stocks that should lead" the semiconductor rebound are:  Texas Instruments (TXN),  Intel (INTC),  Analog Devices (ADI),  and Taiwan Semiconductor (TSM).

EBAY Reports Today

This blog is still young, and though I have not yet logged any comments on eBay, those who know me know that it has been one of my favorite stocks over the past three years.  And why shouldn't it have been?  I made a lot of money owning it for the majority of that time.

Well eBay is sheduled to report earnings after the market closes today.  It closed yesterday at $73.97, down $2.03 (-2.67%) for the day, on volume of 7.4 million, slightly above its 30 day MA.  At this price the multiple is 108.78.  Here is its revenue and earnings history:

Revenues (million $) for Fiscal Year Ending Dec. 

          Q1      Q2      Q3      Q4   Annual

1998                   12.94   19.50    47.35

1999   34.01   49.48   58.53   73.92   224.72

2000   85.89   98.15  113.38  134.01   431.42

2001  154.09  180.91  194.43  219.40   748.62

2002  245.11  266.29  288.78  413.93  1214.10

2003  476.49  509.27  530.94  648.39  2165.10

Earnings Per Share ($) for Fiscal Year Ending Dec. 

         Q1     Q2     Q3     Q4  Annual

1999   0.01   0.00   0.00   0.01    0.02

2000   0.00   0.01   0.02   0.04    0.08

2001   0.04   0.04   0.03   0.04    0.16

2002   0.08   0.09   0.10   0.14    0.42

2003   0.16   0.14   0.17   0.21    0.68

The (21) Wall Street EPS estimates for this quarter range from 0.24 to 0.28 with an average of 0.26.  If the consensus is correct, that makes eBay's current P/E 94.83.

From Forbes.com: "In January when the company reported fourth-quarter and year earnings, eBay said pro forma earnings for the first quarter could be as high as 25 cents per diluted share. In a prepared statement the company said, 'Across every important metric, eBay's global momentum is rapidly accelerating. The business is delivering tremendous results and our long-term prospects couldn't be brighter.'"  (Emphasis mine.)

Like many successful companies, eBay has a track record of low-balling their forecast earnings, so my gut tells me that we will be above the 0.26 consensus number.  If the company merely meets the 0.26 estimate, look for a little short-term weakness.  If it's 0.28 or higher, you may wish you had bought today.  Either way, eBay's legendary growth is a continuing story, and owning the stock is still pretty safe for the long term.

Misc. Observations

Just a few observations on some stocks I commented on here recently:

       Open   High    Low  Close   Volume

DSWT   2.75   2.98   2.50   2.93  186,077

NVEC  41.21  43.35  40.67  42.59  632,530

NVEC found support near its 200-day MA at around 10:15 Monday as it came within 17¢ of that support, although the volume was below average.

Money In Options

A trading buddy and I last Friday were looking at OVTI June 27.50 call options, and at the time (sometime before noon) the last sale price was $1.75.  By the end of the day, the final sales price was $2.05.  I don't remember what the volume was, but it was enough to get involved.

Just now looking back at Monday's activity on the same calls, I see that the last sale price was $2.60, and the volume was 446 contracts.  The open interest is 2,366.

Now this is pretty amazing if you think about it.  Let's assume we bought 15 contracts on Friday for $1.80 and sold them Monday for $2.50.

15 contracts x 100 shares per contract x $1.75 = $2,625.00
15 contracts x 100 shares per contract x $2.50 = $3,750.00

That's equal to a 42.9% return in one trading day!  Of course, the stock price itself moved up 5.15% today, and naturally that helps.  But the fact that this stock is so cheaply priced makes buying the call options about as near a sure thing as you're likely to see in the stock market.

More on Wilder's Parabolic

I've spent some time looking at this, and it's now appearing to be more perilous than I had thought initially.  I'm not giving up on the idea altogether though.  It still intrigues me, but I think trading based solely on the stop and reversal points could prove treacherous.  I think volume and the reasons behind large intraday price swings need to be considered also, before actually triggereing the reversal point.

Wilder's Parabolic

I've been reading up today on a very interesting technical indicator called Wilder's Parabolic, or the Stop and Reverse System.  You can see the graphic representation of this indicator on Yahoo's Technical Analysis charts.  From Overlays, select Parabolic SAR.

This system looks like an excellent tool for predicting entry (long) points and exit (short) points.  I found a nice explanation of how these parabolic points are calculated on a web site called Trader Talk.  I'm seriously considering putting this strategy to the test.  If I do, I'm sure I will be posting more about it here in the future.

Next Generation Equity Research Initiates Coverage on Pixelworks

Next Generation Equity Research has recently initiated coverage of Pixelworks (PXLW), and they have published an awesome report on the company.  The stock closed at $16.60 today, two dollars higher than it was on Mar. 18, when this report was prepared.  Their 12-month price target is $20.00.

Here are a few excerpts:

"The SOC solutions market for the flat panel TV industry is currently a $150 million market which is expected to grow significantly over the next couple of years and Pixelworks has a 30% market share in the segment."

"With almost 85% market share in the projector industry, PXLW’s SOC solutions are used in projectors from Infocus, to Epson, to Sony, to Sharp and Hitachi. The multimedia projector industry has been growing steadily and seen comparatively lesser pricing pressures because of a corporate client base."

"We believe this new product [the Photopia advanced image processor] introduction after almost a year should drive share and revenue growth. The chips are currently in testing at most of the leading flat panel TV OEMs."

It's really worth a look.

NVEC Nearing Support

Wow! NVEC is down about 8-1/2% today, although the volume is not particularly heavy.

If you look at a chart and draw a straight support line defined by the lows of 27.70 on Sep. 8, 2003 and 36.36 on Mar. 15, 2004, you'll see that the price right now is very near that support line, as well as the 200-day MA, which is slightly above the supprt line just described.

This would be a good time to keep a very close eye on NVEC. If you see it bounce off of its 200 DMA or that slightly lower supprt line, it just might run back to the middle 50's in a short time, or about 25% higher than it is at the time of this writing.

DSWT Update

Okay you day-traders out there.  Yesterday around 1:00 p.m. I suggested that DSWT might be a good short candidate at $3.50, due to a seemingly unwarranted huge increase in share price.

Well, here we are less than 24 hours later, and the price is $2.80. You could cover now and your profit would be 20%.  Not bad for one day!  (You could have covered for less earlier today, but how often do you get the optimal return?)

I don't typically day-trade, but with potential like this I may have to think about it some more.  I might have to start acting on my own suggestions!

The Case For OVTI

Revenues (Million$)

        Q1     Q2      Q3     Q4

2001  17.82  18.39    8.11   9.39

              3.2%  -55.9%  15.8%

2002  11.16  12.27    9.97  13.12

      18.8%   9.9%  -18.7%  31.6%

2003  16.79  21.74   30.52  39.94

      28.0%  29.5%   40.4%  30.9%

2004  46.49  68.54   94.51

      16.4%  47.4%   37.9%

Earnings per Share ($)

       Q1     Q2     Q3     Q4

2001  0.05   0.05  -0.37   0.00

             0.0%  -840%   100%

2002  0.01  -0.09   0.00   0.04

      100%  -1000%  100%   100%

2003  0.04   0.06   0.09   0.06

      0.0%  50.0%  50.0% -33.3%

2004  0.12   0.19   0.28

      100%  58.3%  47.4%

As I write this, OVTI's price is $26.13.  With $0.65 in earnings over the past 4 quarters, the P/E is 40.2.

You'll notice that EPS has increased the last 3 qtrs. at these rates (qtr./qtr.): 100%, 58.3%, 47.4%.  According to the 7 analysts following this company (as reported on the Yahoo page), their EPS for Q4 are to be an estimated $0.31. (Note that 60 days ago, the estimate was for $0.21.)

If the analysts are correct, the Q4 EPS will increase only 10.7% over Q3 (a rate which appears unrealistically low if you ask me).  But let's assume they are right.  That would put the EPS for the trailing twelve months at $0.90, which makes the P/E 29 based on the current price.

Historically, the analysts' EPS estimates have ranged from 20 to 33% low in the last 4 quarters, so let's assume their present estimate is 25% low.  In this case, their Q4 EPS number will be $0.39, and the ttm EPS will be $0.98, making the P/E 26.7 based on the current price.  $0.39 is 39.2% higher than Q3's $0.28, which looks to be more in line with the current growth rate.

Now go in search of a company growing at the rate Omnivision is growing, whose stock is selling at a multiple like this.  Could you find one?  I didn't think so.

Conclusion:  Do not panic at the current downtrend.  In fact, if you can afford it, add to your position.  This stock is artificially and unrealistically cheap!

p.s.:  From Briefing.com 4/15
OmniVision (OVTI) 26.13 -0.72: Next Generation Equity Research believes that Olympus' earnings/sales miss last night may serve as a wake up call for Japanese DSC manufacturers to move to CMOS sensors. Firm believes the move to CMOS sensors might increase the addressable market for Omnivision and provide an opportunity to OVTI.

CNBC & Maria Bartiromo

Where would we be without CNBC and Maria Bartiromo?

I shudder to think of it. Anyway, I added a link to CNBC in the sidebar, as well as a link to a story about Ms. Bartiromo in the St. Petersburg Times. (Click on the picture for the latter.)

DSWT - Short Candidate?

I see Duraswitch (DSWT) is up about 63% today to $3.50 as of the time of this writing. I only see one news story for this company on Yahoo, and it surely doesn't appear to warrant a move of this magnitude.

Maybe there's more to this story I don't know about, but this company has never had a profitable quarter, and their annual revenue has declined every year since 2000. They may have a good product, but they must have a poor business model, or just plain inability to execute.

I remember looking at DSWT a couple years ago when it was around $11, and I never bought any. I sort of lost track of it until today.

NVEC Is Starting to Look Attractive

NVEC peaked at $69.69 on Jan. 20th this year. It closed at $47.01 yesterday (Apr. 14), down 32.5% from its high water mark, though it is still up 608% in the last twelve months. Volume was 717,600, 31.4% below its average of just over a million.

Here are some of its stats:

From Vector Vest:
VST 0.88 RT 0.78 RV 0.89 GRT 28.00
CI 1.54 P/E 111.93 REC Hold

Ratings From IBD:
EPS 80 RS 96 Grp RS C SMR A Acc/Dis B+


Highlights from a Wednesday article on p. A6 of Investor's Business Daily:

Quoting CEO Daniel Baker, when NVEC's products are put into common usage, we will see "an instant PC you don't have to boot up," and "a cell phone the size of a wristwatch." . . .

"Through partnerships, Cypress Semiconductor and Motorola use NVE's technology to bring to market a new type of memory chip that combines the speed, density and permanence of the chips used now. The new technology is called magnetic random-access memory, or MRAM.

"'NVE has the potential to be the Microsoft of the (spintronics) industry,' said analyst Ed Cabrera of Giordano Securities Group. 'Its patent on how to get the electrons to spin (is) probably the most marketable, commercial way of doing it.'"

Here's a 6-month Yahoo chart:

Accelerating EPS Growth

These stocks were screened for accelerating EPS growth over the past twelve months:

ACS    Affiliated Computer Services             Computer Services

ACL    Alcon, Inc.                              Major Drugs

ASGR   America Service Group Inc.               Healthcare Facilities

ADM    Archer Daniels Midland Company           Food Processing

BEC    Beckman Coulter, Inc.                    Scientific & Technical Instr.

BHP    BHP Billiton Limited (ADR)               Metal Mining

BJS    BJ Services Company                      Oil Well Services & Equipment

CAI    CACI International, Inc.                 Computer Services

COGN   Cognos Incorporated                      Software & Programming

EWBC   East West Bancorp, Inc.                  Regional Banks

ERTS   Electronic Arts Inc.                     Software & Programming

WIRE   Encore Wire Corporation                  Misc. Fabricated Products

ENTG   Entegris, Inc.                           Semiconductors

FL     Foot Locker, Inc.                        Retail (Apparel)

HIBB   Hibbett Sporting Goods, Inc.             Retail (Specialty)

HMC    Honda Motor Co., Ltd. (ADR)              Auto & Truck Manufacturers

HNP    Huaneng Power International, Inc. (ADR)  Electric Utilities

INFY   Infosys Technologies Ltd. (ADR)          Software & Programming

IFIN   Investors Financial Services Corp.       Investment Services

KSWS   K-Swiss Inc.                             Footwear

LSCP   Laserscope                               Medical Equipment & Supplies

MET    MetLife, Inc.                            Insurance (Life)

PDS    Precision Drilling Corporation           Oil Well Services & Equipment

SFFB   Southern Financial Bancorp Inc.          Regional Banks

TEK    Tektronix, Inc.                          Electronic Instr. & Controls

URBN   Urban Outfitters, Inc.                   Retail (Apparel)

WST    West Pharmaceutical Services             Fabricated Plastic & Rubber

YHOO   Yahoo! Inc.                              Computer Services

$$$Mr. Market$$$ is Buying SPF

I see that $$$Mr. Market$$$ bought SPF today:

"Today I bought Standard Pacific (SPF) at 52.27 (that’s right, I finally bought one on a dip). I will sell it in 4 to 6 weeks at 60.35."--Mr. Market

He makes a pretty good case for buying. You can navigate to his message and read about it if you like.

$$$Mr. Market$$$ is not only a great stock-picker, but he's also one hillarious dude! (Notwithstanding his OFG pick of a few days ago, which has yet to turn back up.)

The lovely Leslie LaRoche on CNBC just now makes a good point:

Higher interest rates can benefit tech stocks due to a rotation out of REITs, utilities, etc.

Thank you, Leslie. I hadn't thought of that.

By about 11:10 a.m. the DJI is up 25 points, and the NASDAQ is up 9 points.

NTE down only .5%; OVTI up 1.5%; SCHN up .75%

This is further proof that panicky, knee-jerk reactions to perceived bad news can lose you lots of money.

It won't surprise me, however, if we end up down on the day as a whole. It is Wednesday, after all.

Sucker Punch

Well here we go. The market opened hugely down, as expected. And My stocks were no exception. They opened down so far that I wouldn't dare sell them at those prices.

Within seconds, OVTI was down 8% from yesterday's close. That's insane! Who sells an already underpriced stock for 8% lower? I reason that there's nowhere to go but up from here, so why sell?

The situation is the same with SCHN. Only it was down about 9% within seconds! Unreal. Some people deserve to lose their money.

NTE was a little late getting started, with only nine hundred shares traded for the first ten minutes or so, and down < 3%. It finally caught the wave and by about 9:47 44,000 shares had traded, and the price was down about 5%.

I've got no choice but to hold now. I've weathered worse storms than this one, and have come out on top.

My Thoughts This Morning

The Consumer Price Index for the month of March was reported to be up .5% this morning. This bodes ill for the stock market.

Not only that, but I've noticed that Wednesdays this year have typically been bad days for my particular portfolio.

I should liquidate everything at the opening bell. My current holdings: NTE, OVTI, SCHN.