The U.S. stock market opened the first trading week of 2017 with substantial gains. The Dow Jones rose 1.01%, the S&P 500 jumped 1.65% and the NASDAQ rebounded 2.91%. The MSCI Emerging Markets Index continued its strong run by rallying 2.66%.
This week’s Bull Market Alert recommendation takes you back into the tech sector with a fast-growing Silicon Valley-based small-cap stock.
Founded in 1966 and headquartered in Santa Clara, California, Coherent Inc. (COHR) provides lasers and laser-based technology for a wide range of scientific, commercial and industrial applications worldwide.
Coherent’s stock has been on a tear, having more than doubled in 2016.
Here’s why I expect Coherent to continue its strong performance into 2017.
First, the U.S. technology sector has underperformed the broader stock market since the November elections. That is at odds with the fundamentals, which suggest that 2017 could be a bumper year with global information technologies (IT) spending to reach $3.5 trillion next year.
Second, Coherent’s lasers are behind the next-generation organic-light-emitting diode (OLED) displays and show up in everything from smartphones to tablet computers to PCs to TVs. Rival companies Samsung and Apple are both planning to launch OLED-based smartphones in the coming year. The widespread adoption of OLED TVs also promises to be a huge market for Coherent.
Third, S&P Global Market Intelligence expects Coherent’s profits to soar 82% to $6.51 per share on 73% revenue growth. At the same time, Coherent tends to surprise to the upside by an average of 10%. With the next earnings announcement due on January 26, 2017, the stock may be on the verge of another leg up.
Finally, the stock has strong technical momentum and is a favorite among the top-performing small-cap strategies I track as well. No wonder analysts at Benchmark recently increased their price target on Coherent by $35 to $160. That’s 19% above Friday’s closing price.
So buy Coherent Inc. (COHR) at market today, and place your stop at $115. I’ll hold off on an options recommendation for now, as the stock is currently overbought.
Nicholas A. Vardy