|Written by GSCR Staff|
|Thursday, 08 January 2015 08:38|
A New Year, Same Hot Sector
If you ignore January 2nd, which was a quasi-holiday for the market, 2015 has been extremely exciting in just three days of trading with two big sell-off days followed by a return of buyers (or dearth of sellers) yesterday. Oil is dominating the talk as investors try and gauge the impact of the huge drop in black gold over the last several months. We cautioned 2 weeks ago that continued oil price declines could have a negative effect on stocks. Now that some of the macro attention has abated, we can get back to valuation, which will help drive accumulation in key sectors. One sector that looks like it will continue to flourish in 2015 is technology.
In Monday’s Goldman Guide we discussed “Why Tech Stocks Rock in January” and made it a point to try and make a play on the annual International Consumer Electronics Show (CES) going on in Las Vegas right now. While a large portion of the companies featured at this event are still privately funded, there are some small cap tech stocks in play. In our view, STMicroelectronics NV (NYSE – STM - $7.44) presents a great opportunity for many reasons including currently trading over the 50-day EMA technical metric.
While we normally only feature U.S. companies in the Market Monitor, this Swiss semiconductor integrated circuits and discrete devices innovator has had some serious momentum with new product releases, highlighted by being a recipient of an International CES Innovations Design and Engineering Award. This year, the STA311B was selected as an honoree in the Home Audio/Video Components and Accessories category. The STA311B is a single-chip solution for digital audio processing and control in multichannel applications that delivers high-quality, high-efficiency, all-digital amplification. The Company has also had new product introductions in Ultra-HD, graphics, and heart beat monitors over the last few months.
Our basic P/E valuation also makes STM look like solid buy. The trailing P/E is a sky high 135, while the forward P/E is just over 20 with consensus analysts’ estimates for 2015 revenue close to $7 billion. Additionally, $2.5 billion in cash as of the end of 3Q14 displays the Company is well positioned to continue product releases.
We believe STM is an undervalued tech stock to start 2015. We think the stock can climb to $10 by the end of the year aided in part by the fact that seasonally, semis tend to do well this time of year.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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