Today, we are recommending the purchase of a semiconductor equipment company and selling two previous ideas. The semiconductor company beat analysts’ EPS estimates by $0.10 last quarter, and is expected to grow by 22.4% this year.
Teradyne, Inc. (TER)
From Cabot Top Ten Trader
Teradyne, Inc. (TER) is a mid-cap industrial technology company that supplies automation equipment for test applications, mostly for semiconductors, wireless products, data storage systems and other complex electronic systems. It also sells collaborative and mobile robots that help customers make smarter devices, more powerful and reliable data storage systems and life-saving medical equipment.
It’s not a rapid growth stock; in fact, revenue was down modestly in 2018. But Teradyne offers exposure to big and important industrial markets like 5G network infrastructure testing, high power semiconductor testing and industrial automation (up 35% in the last quarter), pays a dividend and is cheap on a valuation basis (forward PE of 15.7).
The stock is doing well because big-picture operational initiatives like acquisitions (latest was Lemsys in Q1 2019) are helping round out the portfolio and because management has approved stock buyback and dividend hikes that are bringing more value-oriented investors to the table.
Plus, Q1 results, reported on April 23, beat expectations. Teradyne should deliver vanilla results this year with both revenue and EPS up less than 3%. But 2020 looks more interesting with revenue up 14% and EPS up 22%. If you like off-the-radar industrial growth and value stories, Teradyne fits that mold.
TER did very little for a few years then took off in 2017 and early-2018, when it peaked near 50. The rest of last year was less fun as TER chopped around (mostly down) and ended the year near 30. The stock raced back to 40 over the first three months of 2019, walked up to 44 prior to the April 23 earnings release, then gapped up a few points and tested the 2018 high of 50. It’s pulled back a few points since, but the action is reasonable given the market’s wobbles. We’re OK taking a stab at shares here, albeit with a tight stop.
Suggested Buy Range
44.5-46.5
Cabot’s buy range is valid for two weeks.
Suggested Loss Limit
42-43
Michael Cintolo, Cabot Top Ten Trader, www.cabotwealth.com, 978-745-5532, May 13, 2019