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Friday, March 24, 2006
Removing REDF Sell from Coverage
REDF has sold off to $21 from our strong sell coverage near $33.75. While it still has an extremely high valuation and could go much lower, we're removing REDF from coverage after this sizable decline.
Thursday, March 23, 2006
Rambus (RMBS) Sell Opportunity Again
In January, we highlighted a sell opportunity
on Rambus (RMBS) shares near $35 and later removed coverage as it dropped, saying we would revisit the RMBS sell call if it rallies again.
Today, after selling off to the 26's in February, RMBS is approaching the $38 target cited in the WR Hambrecht upgrade in January that assumed RMBS would win all its court battles and receive payment this year. This rally has been spurred on by several press releases related to RMBS's ongoing business as well as speculation on the results of the ongoing Hynix trial. The ongoing business news has been insignificant compared to the huge premium priced into the stock, which assumes RMBS will win all their cases.
We believe that Rambus again represents a good sell opportunity. If Rambus wins the Hynix case as expected, we expect a sell the news reaction, as shares are valued well beyond the underlying fundamentals. If they lose the case, we expect a collapse in the stock price. The Hynix case should be decided within the next few weeks.
Tuesday, March 21, 2006
Silver and Zinc Hit Multi-year Highs
With news about a new silver ETF (Exchange Traded Fund) getting closer to reality, silver today hit a new 22-year high over $10.50/ounce. Meanwhile, zinc also hit a new high over $1.13/pound, as the zinc inventory tracked by the London Metal Exchange fell to "less than 11 days of global consumption. Stockpiles have dropped 48 percent in the past year."
According to Bloomberg, "Zinc rose to a record in London as a decline in stockpiles signaled strengthening demand from China, the largest consumer of the steel-galvanizing metal."
As we mentioned in our original report
, Metalline Mining (MMGG) has a large amount of both zinc and silver, though the silver development had been put on hold since 1999 as the company shifted focus to its oxide zinc. As both metals continue on their long-term bull market rally, and as Metalling Mining moves closer to mining these valuable resources, long-term shareholders should benefit greatly.
China Techfaith Wireless (CNTF) Buy Opportunity
China Techfaith Wireless (CNTF) has been an incredible trading stock in recent months, rallying from the 12's to 18 twice in the last 4 months. Last night, CNTF reported solid earnings of .24 vs. analyst estimates of .22. However, as part of their earnings release, CNTF warned that Q1 2006 would be well below expectations because of a transition from GSM platforms to 3G phones. Despite the short-term down guidance, their guidance for the year 2006 is above analyst estimates, with strong expectations after the transition to 3G.
After selling off from 18 to the 12 area in the last few weeks, CNTF is trading down in the 10's this morning after the earnings report. We view this selloff on the Q1 warning as a buying opportunity for the long term. If CNTF meets their higher full-year guidance and the strategic shift to 3G is successful, CNTF should remain a great long-term buy. Q1 is almost over, so operational performance should improve dramatically for the rest of the year. 3G in China should improve their performance further.
The market is forward looking, so once the Q1 setback is in the past, the stock should perform better. As long as the Q1 miss is only a short-term transitional phase on the way to a solid year, as management expects, we view the weakness on the Q1 miss as a buying opportunity for the long term. While CNTF may remain weak in the short term as traders exit, a PE ratio of around 10 for a stock with high growth potential if they meet their performance objectives looks like an attractive risk/reward situation to us.
Thursday, March 02, 2006
Removing Omnivision (OVTI) Coverage, Replaced in Top 5 Picks with INCY
Omnivision (OVTI) reported earnings for their fiscal Q3 of .53 vs. analyst expectations of .45. However, their outlook for Q4 calls for a sequential decline in revenue and earnings from Q3, with a 25% or more decline in earnings. In premarket trading, OVTI shares are down over $1 to $26.
Given OVTI's 36% rally in 2006 and their less-than-stellar outlook, we are removing OVTI from coverage. While OVTI may still rally strongly in the long term, the risk/reward ratio isn't nearly as attractive now as it has been in the past. We are replacing OVTI's spot as one of the top 5 picks for 2006 with INCY, which we added as a long-term pick on January 26 at just over $5.
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