Chartered Semi’s stock price has been on a tear of late, up almost 30% just this year. Here’s why I think this Global Bull Market Alert pick will continue its upward trend:
First, Chartered Semi is at a turning point in its earnings cycle. It first swung into profit in Q4 of 2005, driven by a whopping 93 percent increase in revenue. Income for the quarter was $26.5 million, or a penny per share, reversing a loss of $26.8 million a year earlier.
George Thomas, Chartered Semi’s CFO, said he expects that the final results for first-quarter 2006 will show $352 million to $360 million in revenue and income between $10 million to $20 million. The outlook for the company’s profits has been steadily improving, and Thomas recently reiterated this positive guidance.
Second, Chartered Semi’s collaborative efforts with its high-profile partners are paying off. It is set to play a key role in U.S. chipmaker AMD’s efforts to gain market share on rival Intel. AMD’s objective is to capture 30% of the market for chips used in laptops and desktops by 2008. Some analysts have been skeptical that AMD can churn out enough chips to satisfy demand. The solution? Chartered Semi is now working with AMD as a second source for chip production.
Chartered Semi’s recently announced alliance with IBM and Samsung focuses on making readily available design-for-manufacturing (DFM) technology, models, design kits and data files based on a Common Platform technology. This underlines Chartered Semi’s dedication to the unprecedented openness and accessibility of this common platform model, a model that should continue to improve Chartered Semi’s bottom line going forward.
Chartered Semi’s earnings release will come out after the market closes this Wednesday (April 19). If the earnings are surprisingly high, the stock should rise above $10.
So buy Chartered Semiconductor Manufacturing Ltd. (CHRT) today at market and place your stop at $8.50. To play the upside of a potential positive earnings surprise, buy the September $10 call options (UCTIB.X)
PORTFOLIO UPDATE
On Thursday, Brazilian discount airliner GOL skyrocketed 17.5% to $32.66 on the news that leading Brazilian airline (and GOL competitor) Varig may be forced into liquidation. With GOL up 30% since we recommended it a month ago, sell half your shares here, and your remaining options in GOL for a triple-digit gain of 165%. Move your stop on your remaining shares to $28.50.
Las Vegas Sands (LVS) is also up close to 14% just in the past two weeks. Take your profits on one-half of your remaining options for a 94% gain. Move your stop to $59.50.
Goldman Sachs upgraded India outsourcing play Cognizant Technology Solutions (CTSH) to "outperform" with a target price of between $70 and $75, noting that "Cognizant’s current valuation has not fully captured the company’s growth prospects." CTSH is up more than 8% since we recommended it three weeks ago at $56.28.
