Tag Archives: stocks

Quietly, Telecom System Builders Emerge As Leaders

While makers and sellers of smartphones and tablet PCs are glamour brands, some of the companies that make the equipment to make those devices work are quietly turning into attractive investment choices. The telecom infrastructure industry group remains in the bottom half of IBD’s rankings, yet it’s made a rapid advance over the past few weeks as its leaders shape attractive charts. The group ranked No. 107 in IBD Weekly, up from 147 four weeks ago. Three top-rated stocks in the group are of particular interest because they have topped or are approaching buy points. The most critical to watch now is Broadsoft ( BSFT ), which rose above the 42.16 buy point of a base-on-base pattern Monday in active trading. For the stock, it’s been an impressive rebound after the May 2 earnings announcement rattled shares. Although it beat profit expectations, Broadsoft projected its current-quarter operating EPS below views . Shares fell as much as 11% on the news, but they quickly recovered and continued working on the base until Monday’s breakout. The company helps big telecoms deliver unified communications, integrating voice, video and text messaging and other forms into a single stream. Dycom ( DY ), which is on the IBD 50 , is trying to break out past a 73.28 buy point. With the earnings report due Tuesday after the close, it could be the next telecom infrastructure stock to make a move. Analysts expect Dycom to earn 74 cents a share and to report sales of $597.8 million. Dycom has a nearly perfect EPS Rating of 98. In a report Monday from D.A. Davidson, the research firm said, “ AT&T ( T ), Verizon Communications ( VZ ) and other presumed Dycom customers have announced plans for ongoing major fiber expansion, suggesting near-term growth in wireline construction activity will continue to be robust.” Those same trends figure to aid other telecom infrastructure companies. Indeed, capital spending by the major telecoms drives much of the infrastructure industry’s fortunes. CommScope Holding ( COMM ) is forming a cup-with-handle base with a buy point at 31.80. The Hickory, N.C.-based company helps telecoms design, build and maintain wired and wireless networks. Ubiquiti Networks ( UBNT ) broke out of a base May 6 after it reported earnings. Ubiquiti, which builds wireless networks around the world, beat estimates. Earnings and sales growth have accelerated the past few quarters, following a slump in the first half of 2015 that saw EPS and sales decline. The stock is in buy range from the 37.20 buy point.

Apple Chip Suppliers Broadcom, NXP, Skyworks Up On iPhone 7 Hopes

Apple ( AAPL ) chip suppliers Skyworks Solutions ( SWKS ), Cirrus Logic ( CRUS ) and Qorvo ( QRVO ) stocks lifted Monday on a bullish RBC Capital report that sees fellow chipmaker Broadcom ( AVGO ) reaching $16 earnings per share on merger synergies and iPhone 7 content gains. But Broadcom’s Q2 wireless sales will likely dip $40 million to $50 million on slowing current-generation iPhone sales, RBC Capital analyst Amit Daryanani wrote in the research report. He rates Broadcom stock his top semiconductor pick, with a 180 price target. Over the next two years, Broadcom stock could reach 200, Daryanani says. In afternoon trading on the stock market today , Broadcom stock was up a fraction, trailing shares of InvenSense ( INVN ) and Qorvo, which jumped 3.4% and 3.3%, respectively. Cirrus Logic, Skyworks and Taiwan Semiconductor Manufacturing ( TSM ) stocks were up 3, 2.5% and 1.5%, respectively. NXP Semiconductors ( NXPI ) stock was up nearly 1.5%, while  Integrated Device Technology ( IDTI ) was up a fraction. Broadcom is slated to report its Q2 earnings after the close June 2. Daryanani expects Broadcom to miss consensus expectations for $3.55 billion in sales on petering Apple iPhone sales, despite stronger-than-expected Samsung Galaxy S7 sales. Apple comprises 15% of Broadcom’s sales, Daryanani estimates, with Samsung in the high single digits. Apple’s June-quarter guidance implies 40 million iPhones shipped vs. consensus views for 44 million. Near term, Apple will pose a headwind until the iPhone 7 , expected to be released in September, ramps up. “To that end, Broadcom’s FBAR (film bulk acoustic resonator) business could see double-digit year-over-year growth driven by content gains,” Daryanani wrote. Wi-Fi combo chips could also see modest average sales prices tailwinds. Earlier, Broadcom saw wireless account for 23% of sales. Daryanani expects that segment to grow 37% quarter over quarter as the company’s recent merger is factored. The former Avago Technologies bought Broadcom for $37 million in February, but kept the Broadcom name. Storage sales will likely become “incrementally worse,” Daryanani wrote. Western Digital ( WDC ) and Seagate Technologies ‘ ( STX ) recent earnings suggest a $100 million hard-disk drive total addressable market in March and a $95 million TAM in June, down 20% and 15% vs. last year. Enterprise storage is expected to account for 17% of Broadcom’s Q2 sales. Daryanani sees the segment declining 14% vs. Q1, vs. 6% sequential growth in the prior quarter.

Q2 2016 Style Ratings For ETFs And Mutual Funds

At the beginning of the second quarter of 2016, only the Large Cap Value and Large Cap Blend styles earn an Attractive-or-better rating. Our style ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each style. Investors looking for style funds that hold quality stocks should look no further than the Large Cap Value and Large Cap Blend styles. These styles house the most Attractive-or-better rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management , or good stock picking, with low total annual costs . Attractive-or-better ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) cheap funds can dupe investors and (2) investors should invest only in funds with good stocks and low fees. See Figures 4 through 13 for a detailed breakdown of ratings distributions by style. Figure 1: Ratings For All Investment Styles Click to enlarge Source: New Constructs, LLC and company filings To earn an Attractive-or-better Predictive Rating, an ETF or mutual fund must have high-quality holdings and low costs. Only the top 30% of all ETFs and mutual funds earn our Attractive or better rating. Absolute Shares WBI Tactical LCV Shares (NYSEARCA: WBIF ) is the top rated Large Cap Value fund. It gets our Very Attractive rating by allocating over 34% of its value to Attractive-or-better-rated stocks. Ameriprise Financial (NYSE: AMP ) is one of our favorite stocks held by WBIF and earns a Very Attractive rating. Over the past decade, Ameriprise has grown after-tax profit ( NOPAT ) by 8% compounded annually. The company has improved its return on invested capital ( ROIC ) from -2% in 2008 to 11% in 2015. Similarly, the company has increased its NOPAT margin from 11% in 2005 to 14% in 2015. Across all facets, Ameriprise is improving business fundamentals, yet the stock remains undervalued. At its current price of $99/share, AMP has a price-to-economic book value ( PEBV ) ratio of 1.1. This ratio means that the market expects Ameriprise to grow NOPAT by only 10% over its remaining corporate life. If AMP can grow NOPAT by just 6% compounded annually for the next decade , the stock is worth $132/share today – a 33% upside. ProFunds Mid-Cap Value ProFund (MUTF: MLPSX ) is the worst rated Small Cap Value fund. It gets our Very Dangerous rating by allocating over 37% of its value to Dangerous-or-worse-rated stocks. Making matters worse, total annual costs are a whopping 6.72%. New York Community Bancorp (NYSE: NYCB ) is one of our least favorite stocks held by MLPSX and earns a Dangerous rating. Over the past decade, New York Community Bancorp’s NOPAT has declined from -$294 million to -$80 million. Over the same time period, the company’s ROIC declined from 8% to a bottom-quintile -1%, while its NOPAT margins fell from 43% in 2005 to -13% in 2015. Worst of all, the stock has not followed this decline in operating performance and is significantly overvalued. In order to justify its current price of $15/share, NYCB must immediately achieve positive pre-tax margins of 18% (from -21% in 2015) and grow revenue by 31% compounded annually for the next 13 years . In this scenario, NYCB would be generating over $20 billion in revenue 13 years from now, which is equal to Aflac’s (NYSE: AFL ) revenue in the last fiscal year. It’s clear the expectations baked into NYCB are overly optimistic. Figure 2 shows the distribution of our Predictive Ratings for all investment style ETFs and mutual funds. Figure 2: Distribution of ETFs & Mutual Funds (Assets and Count) by Predictive Rating Click to enlarge Source: New Constructs, LLC and company filings Figure 3 offers additional details on the quality of the investment style funds. Note that the average total annual cost of Very Dangerous funds is almost four times that of Very Attractive funds. Figure 3: Predictive Rating Distribution Stats Click to enlarge * Avg TAC = Weighted Average Total Annual Costs Source: New Constructs, LLC and company filings This table shows that only the best of the best funds get our Very Attractive Rating: they must hold good stocks AND have low costs. Investors deserve to have the best of both and we are here to give it to them. Ratings by Investment Style Figure 4 presents a mapping of Very Attractive funds by investment style. The chart shows the number of Very Attractive funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Attractive. Figure 4: Very Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 5 presents the data charted in Figure 4 Figure 5: Very Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 6 presents a mapping of Attractive funds by investment style. The chart shows the number of Attractive funds in each style and the percentage of assets allocated to Attractive-rated funds in each style. Figure 6: Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 7 presents the data charted in Figure 6. Figure 7: Attractive ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 8 presents a mapping of Neutral funds by investment style. The chart shows the number of Neutral funds in each investment style and the percentage of assets allocated to Neutral-rated funds in each style. Figure 8: Neutral ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 9 presents the data charted in Figure 8. Figure 9: Neutral ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 10 presents a mapping of Dangerous funds by fund style. The chart shows the number of Dangerous funds in each investment style and the percentage of assets allocated to Dangerous-rated funds in each style. The landscape of style ETFs and mutual funds is littered with Dangerous funds. Investors in Small Cap Value funds have put over 34% of their assets in Dangerous-rated funds. Figure 10: Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 11 presents the data charted in Figure 10. Figure 11: Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 12 presents a mapping of Very Dangerous funds by fund style. The chart shows the number of Very Dangerous funds in each investment style and the percentage of assets in each style allocated to funds that are rated Very Dangerous. Figure 12: Very Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings Figure 13 presents the data charted in Figure 12. Figure 13: Very Dangerous ETFs & Mutual Funds by Investment Style Click to enlarge Source: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.