Stocks to Profit From the Next 2 Big Things
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We are always in the hunt for the next Amazon, or the next Apple (NASDAQ: AAPL), or simply put, the next groundbreaking company that would bring about a game changing product. Well, what if I told you that I’d found two such companies last year, and both of them look set to get even better going forward.
On a single day of trading earlier this week, both these stocks skyrocketed after one of them unveiled a product that will change the way people light up their homes, and the other jumped on speculation that it would be powering the next revolutionary consumer device. Without wasting more time, let’s see which stocks I’m talking about and why it’s high time you should start taking note of them.
The master of lights -- Cree
It’s been just over a year when I initiated an outperform CAPS call on Cree (NASDAQ: CREE), and it has turned out to be my best ever pick by appreciating almost 112%. For the uninitiated, Cree is a LED lighting company which is always focused on delivering the best performance at the lowest cost.
Cree is a pure-play LED lighting company, and this has helped it stand competition from the likes of Philips Electronics and General Electric. When the year began, analysts were apprehensive that Cree would fall prey to these bigwigs and its lighting business would suffer. Moreover, according to analysts, Cree was priced for perfection and there wasn’t much upside left, and this led to a downgrade from the Deutsche Bank analyst who had tipped Cree for disappointment.
But now, such opinions are nowhere to be seen. The stock’s up 50% this year and isn’t showing any signs of slowing down. The stock soared just recently after Cree updated its guidance for the March quarter and introduced what it calls “The Biggest Thing Since the Light Bulb.” Cree released a 40-watt replacement bulb for $9.97, breaking the $10 barrier which could spur LED adoption further.
A year back, Cree was suffering due to falling prices of LEDs, but now it seems that its erstwhile curse has turned into a boon as a lower price point will be a catalyst for consumer adoption. On top of that, Cree’s says that its new bulb would deliver the same amount of lighting as an incandescent bulb, while consuming 84% less energy and lasting 25 times longer. Cree is constantly focused on delivering more lumens per dollar and this latest piece of innovation tells us that its efforts are bearing fruit.
Throw in the prospects of the LED lighting industry, and you would know that you’ve a winner at your hands. The professional lighting industry in Europe, which is one of the biggest lighting markets, now prefers LED solutions while IMS Research expects LED lighting to double in the next three years. The huge LED opportunity, along with cutting-edge products, should prove to be beneficial for Cree and I won’t be surprised if the stock keeps rising going forward.
The “Glass” rider -- Himax
Just a few days after I’d initiated the outperform call on Cree last year, I covered a little-known company known as Himax Technologies (NASDAQ: HIMX) for the first time. The company’s display-drivers were used by some of the most well-known names in the consumer electronics industry, including Apple, Dell, Samsung, etc. in products ranging from monitors to mobile computing devices.
I hadn’t initiated an outperform call on the stock then, and I wish I should have done so since the stock is sitting on an astronomical gain of more than 150% in just over a year. But, I did make the call just two weeks back, and the stock has gained a whopping 40% since then. Himax also spiked earlier this week, after an article by Mark Gomes on Seeking Alpha suggested that the company could be a component supplier for the Google (NASDAQ: GOOG) Glass.
Gomes cited a number of instances which point towards Himax’s participation in the Google Glass project. He noted that Himax CEO Jordan Wu was excited about “head-mounted display application” for which the company has shipped LCOS microdisplays on a “pilot” basis. In addition, the author’s investigation also revealed that the glass panel on the device was a “perfect match” to Himax’s offering.
This microdisplay is a part of Himax’s non-driver business, which has been growing at a rapid pace. As I had noted in my previous article on Himax, management expects the non-driver business to outperform its driver IC business in the future. If Himax’s participation in the Glass project turns out to be true, then the company would most probably benefit a lot since the Google Glass is a highly-anticipated device that might bring wearable computing to another level.
Google Glass would undoubtedly be a breakthrough in computing, but its success is a speculation at this point and it was certainly not the reason behind Himax’s speedy ascent over the past one year. The euphoria around Google Glass is new, but Himax’s business of supplying drivers to almost all consumer electronic devices is already strong.
For instance, Himax supplies drivers to Wintek, which makes touch panels for the Apple iPhone and the iPad. So, the company also carries the tag of an Apple supplier, and this should be taken as a positive since Himax seems to be gaining a lot from sales of the iPads, especially the iPad mini, which grew 48% in the previous quarter.
Wintek made the touch panel for the iPad mini, and saw its revenue skyrocket. Thus, as Apple works on the next generation iPad, one can expect Himax to rake in more revenue since Wintek seems to have already started the trial production of touchscreens for the next iteration of the iPad. Apart from this, Himax’s diversification into automotive displays and sales of smartphones in China are some more tailwinds apart from the Google Glass and the iPads.
Both these stocks have been on a great run and there are indications that the good times would continue. But, which of them would you choose? Himax, which is covered by just three analysts thus far, trades at a P/E of just 13.5 times even after its solid ascent, and seems like a far more reasonable option than Cree which trades at a trailing multiple of 107 times. You might consider buying Himax, as it has a great business, might profit from the next big thing in computing, and sells for an inexpensive P/E.
You might consider buying Cree as well, since it plies its trade in an industry which is set to grow and the company’s solid products would help it ride the growth of LED lighting. As far as the multiple is concerned, I won’t bother much about that since Cree is growing at a solid pace and is well-positioned to benefit from the LED revolution.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!