Well IBD joined cramer in bullish comments on TSRA last week and that got the stock over $31. Like I said, its my largest holding so I'm bullish too but more on the longer term side at this point. I am wary of Cramer since a previous time he was bullish on the story the stock missed high expectations and dropped from the mid 40's to the 30's. Could it happen again? sure. This is actually a singles kind of a stock except for big license wins, which can lead to bigger gains.
I can see a couple of positives helping them -- smartphones have higher content of their packaging technology so a higher per unit royalty and smartphone demand is pretty good. Second, they won the wireless case but no one settled. QCOM decided to use Amkor and so far it appears Amkor is not paying for QCOM's units given the litigation between TSRA and Amkor. Still it makes one wonder if other losers in the trial have decided to use licensed packaging firms as a solution while they appeal the decision. Those two positives plus the improving economy could drive upside to results.
The next issue is what is the true earnings power/cash flow of the company and what is an appropriate valuation for them. I have seen an estimate of $2.50 in 2011-2012 earnings power, which to me is reasonable and gets you to the low $50's or about 60% return from here -- still cheap in my mind. guess selling those calls at $30 could be silly. we'll see. like I said -- I can always roll them forward and the put selling helps to raise the break even value.
All that said, I wonder if UEPS isn't the more attractive now. that stock has also been moving up but it was at ridiculous valuation levels -- basically just a handful times free cash flow so now its up to about 10x free cash flow. A 10% free cash flow yield that is growing double digits? sign me up. I think they keep growing steadily but the true valuation change will occur when they reach critical mass in an application outside of south african welfare. if they can find a material earnings generator that is not south african welfare, the multiple will expand dramatically. for me that will either be Iraq, Ghana or Nigeria or south african wage payment. see why I like them -- huge free cash flow (as a percent of assets or revenues cash flow is very strong and cap ex requirements are very small), multiple ways of growing and the valuation remains low. I have not sold calls on UEPS because its too cheap but I might still do it just making sure the puts I sell are same strike as the calls -- straddle rather than strangle. that would help boost my upside break even.
still don't know if we can make it through all of next week without a dip -- if we don't go to new highs some will freak out that its over -- to me it means we need more consolidation time like june/july. semi's -- meant to post something to the effect that its all just rotation but didn't get the chance -- big investors seem to be rotating through different industry/sector groups so groups start to fall behind and then zoom forward as bargain hunters appear -- I have read bearish folks (Kass) who highlight the group that sucks as a reason to short the market or the group that is sucking. so last week he shorts the SMH because semi's are lagging and what happens? semi's take off. he has done the same thing with financials this year. I am hopeful semi's will keep rising -- including two of my super strugglers CY and QCOM. sold some NOV puts on QCOM last friday and have thought about buying some more calls in CY but probably missed my best chance when the stock was in the $9.5 range.
good luck
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