Technology stocks led losses yesterday, but writing off the whole sector right now may be a mistake. Two stocks have bucked the trend of losses and appear to be on track to gain some serious momentum in the coming quarters.
Having historically avoided throwing their hat in the mobile ring, many investors interpreted Intel as a tech giant on the decline, slowly losing its edge to younger, more innovative companies. Intel, the world’s largest chip maker; however, corrected this assumption last week when they announced the next chip-making process. Smaller and done in 3-D, Intel has developed a chip expertly designed for mobile computing. The chips will run faster and cooler, while exhausting less electricity. The enhanced performance per watt capacity will also make the chips a match for servers, where such factors are of even greater importance.
In addition to the chip innovation, Intel, which also sells motherboards, connectivity products and other industry hardware saw revenue surge to a record high of $43.6 billion last year. The company recently raised their dividend to $0.21 a quarter after a highly successful first quarter, prompting considerable optimism. The gesture expressed that the company does not need to choose between innovation and paying out dividends.
In the first several months of 2011, share prices added 20 percent. The release of the chip could contribute to later quarters experiencing even steeper gains. At the current price of $23.41 the stock yields 3.6 percent with a payout ratio of 41 percent.
Earlier in the day, Bank of America Merrill Lynch analysts raised their price target on shares of Intel from $24.00 to $26.00.
SanDisk Corp. (NASDAQ: SNDK)
SanDisk Corp added 3.14 percent yesterday in trading; making it, along with Intel among the few bright spots the tech sector. Driving gains was the company’s announcement that it would acquire Pliant Technology Inc. for $327 million plus incentives. The deal will help SanDisk, a flash-memory maker, infiltrate the enterprise storage market.
Judging by the market response, there seems to be a sense that the acquisition will help the company, but no one is more enthusiastic that the Morgan Stanley Semiconductors team, who raised Sandisks earnings per share far beyond consensus while restating a $100 Bull Case target for 2012. The firm believes that investors are failing to recognize the long-term growth in front of them. SNDK, according to the firm, is trading at 9x/6x their revised CY 11/12 estimates respectively. Morgan Stanley takes this to mean investors are underestimating the revenue and earnings per share upsides potential. The potential is driven by a number of factors.
1) NAND, a type of flash memory, is becoming a noncommodityfor smartphones, as indicated by a 32 percent shift between spot and contract pricing.
2) SSD adoption is poised to rise in the second-hald of 2011, and new lighter notebooks and hybrid versions gain popularity
3) The demand for NAND is expected to rise as faster enterprise storage for cloud computing become the standard.
According to Morgan Stanely’s calculations a long position may be ideal for SanDisk. SSD demand is predicted to explode in 2012, driving up share prices and earnings possibilities. Morgan Stanley moved the price target for the company from $65.00 to $75.00 today.
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