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Disruptive Innovators are more than just technology stocks

Disruptive Innovators are more than just technology stocks

 

KEY POINTS FROM THIS POST

  • As we continue to recast our investment themes here at Tematica, this week we launch a new theme  — Disruptive Innovators.
  • We are adding Universal Display (OLED) shares back to the Tematica Investing Select List as part of our Disruptive Innovators investing theme with a $150 price target.

 

Over the last few weeks, we’ve been reconstituting our collection of investment themes. Following the recent unveiling of our Digital Lifestyle theme, today we are recasting a theme we call Disruptive Innovators. If you thought disruption was only to be had from technology evolution, you’ll want to pay attention.

Every so often a new technology, business practice or other development comes along that upends the status quo: the personal computer; the internet; high speed networks; Google; Uber; the App store; Streaming; Cloud computing; Amazon Prime; mobile advertising, ordering and payments; Light Emitting Diodes (LEDs).

These are just some of the many disruptions that have changed how we think, interact, behave, conduct business, learn, shop and go about our day-to-day lives.

Harvard Business School professor and disruption guru Clayton Christensen says that a disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.

 

 

Established businesses tend to focus on improvements to their existing products and services, usually for their most demanding and most profitable customers. Their focus is on making iterative changes and adjustments along the way, which allows them to maintain their pole position in their particular category, without rocking the boat too much, safe and steady.

Disruptive solutions on the other hand not only look to rock the boat but often tip it over and completely change the lake.

Disruptors often begin by successfully targeting those overlooked customer segments — typically ones that complain about the complexity and cost of existing products and services. The goal of a disruptor is to gain a toehold in a category by removing friction. Oftentimes this could be a technological advance that makes the customer experience much better, which was the case with the introduction of the iPod into the MP3 player market. But disruption can also come in the form of removing friction from the actual process of purchasing a product or service or simply improving the customer experience.

As slow-moving incumbents focus on harvesting profits from mainstream products, disruptive entrants expand their reach and begin to move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

There are numerous examples of this disruptive process to be had, but none greater than mobile phone giant Nokia (NOK). Back in 2007, Nokia sat atop the market with its 41% global market share of the mobile phone category. The cellphone giant, however, completely misread the prospects for the smartphone, a device that reshaped not only a number of industries but one could easily argue it’s the single device that has reshaped all of our lives and is in the process of transforming frontier and emerging economies. At first, it was Blackberry and Palm that gained market share, but when Apple introduced the first iPhone — a device that featured a disruptive capacitive touchscreen and full internet browsing — the writing was on the wall for Nokia’s handset business.

Another example of the creative destruction that disruptors cause came in our media consumption habits. It really wasn’t too long ago that music, TV shows, movies, books, software and games were once sold only in physical formats. Today, in large part due to devices like the iPhone, iPad and Kindle, much of the media we engage with on a daily basis is downloaded or streamed through the internet directly to the device of choice. That change, destroyed established players such as Blockbuster Video, Borders Books and Tower Records, to name a few, and completely changed the product offering in stores like Best Buy, Target and Wal-Mart.

According to the Recording Industry Association of America, within the $8.72 billion spent in 2017 by U.S. consumers on music, streaming was the dominant growth vehicle, accounting for $5.66 billion in revenue (65%), up from 2016’s $3.96 billion. While digital downloads were hardest hit, falling 22% by volume year over year, physical album sales continued to fall vs. 2016. Underneath that disruptive shift, we find robust 4G LTE mobile networks and highspeed fiber networks as well as storage and increasing processing power.

Interface technologies have morphed from keyboard-mouse to touchpad and with the launch of Apple’s first iPhone 10-years ago capacitive touch. In 2011, Apple launched its digital voice assistant Siri that paved the way for Amazon’s Alexa and Google Home as well as a number of other virtual assistant offerings. While those digital assistants are racking up design wins in consumer appliances and cars, voice interface technology has expanded into other markets including financial services with Bank of America’s Erica, which has more than 1 million users.

At a consumer level, Amazon Prime’s two-day shipping has disrupted how the entire retail industry serves its customers. Online retailers, including Amazon, initially gained a foothold in the retail category because of their competitive advantage in two critical areas — choice and pricing. Amazon’s Prime service, however, removed the two remaining points of friction that came with online shopping — the time and cost of shipping your purchases to your doorstep and the hassle of returning items. Amazon Prime, and other online retailers that have followed Amazon’s lead, have completely removed the need to “just run to the mall” and we are now experiencing a “retailmageddon” that is disrupting the bricks and mortar landscape and transforming what a physical retailer looks like in the United States. Amazon is now looking to do the same with grocery and pharmacy given its acquisitions of Whole Foods and more recently PillPack.

 

 

Disruption Is More Than Just Technology

We now live in a time where technological disruptions are almost expected — one of the main criticisms of the latest round of iPhone’s was their lack of disruptors. But disruptions can come in all aspects of our lives.

Passersby used to hail a taxi, but now using an app they can do the same via their smartphone. Uber has transformed the task of summoning a ride into an easy, affordable proposition. Through its mobile app, users can request a ride and choose a vehicle based on luxury level and fare for their destination, a vast improvement on the old taxi model. As riders shifted from taxis to these on-demand ride services, the shares of Medallion Financial (MFIN), a finance company that focused on taxi medallion lending, saw its shares fall below $5.50 from a peak near $18 in November 2013.

Anyone who has booked a hotel knows it isn’t always an intuitive, cost-effective or pleasant experience. AirBnB has completely disrupted the industry by offering a completely different experience when visiting a new city or destination. Thanks to the company’s disruptive business model, travelers can now look beyond the hotel chains, inns or B&B’s, and rent local rooms in homes or apartments, often at a significant discount to traditional alternatives. AirBnb’s disruptive business model, of course, has the dual benefit of allowing anyone with an extra room, empty apartment, or house to earn a profit from their unused asset.

While those are more recent examples, there are numerous others to be had over the past decades and in each case, a new technology, service or capability has altered the competitive landscape.

 

 

The Disruptors Don’t Always Emerge as the Winner

Of course, not every would-be disruptor gains sufficient footing that its business model or technology becomes sustainable. For example, any number of internet-based retailers pursued disruptive paths in the late 1990s, but only a small number prospered. Pets.com, Webvan, eToys, Drkoop.com, and GeoCities are just a few examples of those that failed.

More recent examples of questionable disruptors include subscription-based movie ticketing service MoviePass and ingredient and recipe meal kit service Blue Apron (APRN). While both are attempting to alter their respective landscapes, MoviePass is contending with the accelerating adoption of streaming video services and fresh proprietary content as well as Hollywood studios continuing to push to offer movies in the home mere weeks after their theatrical review. With Blue Apron, numerous meal kitting companies have popped up as have similar services from the likes of Kroger (KR) and other grocery giants that have removed its early foothold.

Some technologies like 5G and organic light emitting diodes have a long runway in front of them, which necessitates tracking competitive developments and other signposts to determine when they will disrupt past disruptors 4G LTE, liquid crystal displays and LEDs. Other developments, such as augmented and virtual reality as well as drones are waiting for the spark that will stir widespread adoption across businesses and consumers alike.

 

 

Investing In Disruption

Today there are many disruptors spanning information technologies, biological sciences, material science, healthcare, energy, consumer and business services and other fields and are the basis for our Disruptive Innovators investment theme. Some of the technologies and business models we are tracking as part of this investment theme include but are not limited to:

  • 5G
  • Artificial intelligence
  • Autonomous vehicles
  • Blockchain
  • Business services
  • Cloud
  • Display technologies
  • Drones and unmanned vehicles
  • Internet of Things (IoT)
  • Organic light emitting diodes
  • Renewables and clean energy
  • Smart manufacturing (3-D printing)
  • Spatial Computing (augmented/virtual reality)
  • Voice control and digital/virtual assistants

As we examine these and other disruptors, we look for the key enablers of the disruption. In some cases, this could be the service providers themselves, device/technology companies, key component vendors or in some cases intellectual property holders. Using 5G as an example, the array of contenders would include:

  • AT&T (T) and Verizon Communications (VZ) as service providers;
  • Ericsson (ERIC) and Nokia (NOK) as 5G infrastructure players;
  • Chipset companies Qualcomm (QCOM) and Skyworks Solutions (SWKS);
  • And Qualcomm again as well as InterDigital (IDCC) given their respective 5G patent portfolios.

That food chain or ecosystem view enables us to identify key customer-supplier relationships that capture the companies with the widest reach, which tends to reduce customer specific risks. As an example, because Qualcomm and Skyworks sell their chips to the who’s who in smartphones, smartphone market share shifts have a modest impact on their revenue streams.

Could we go deeper into the food chain? We could, but the further down we go, the further removed we could be from the source of disruption. Putting it all together, this investment theme focuses the major disruptive evolutions and then identifies those companies whose bottom lines are best positioned to benefit.

 

Our Disruptive Innovator Leader

One of the companies that match the criteria of a Disruptive Innovator and also holds prime food chain position in its category is organic light emitting diode company Universal Display (OLED). We’ve danced with this company and its shares over the last two years, riding it to heights as Apple (AAPL) prepared to launch the iPhone X that featured an OLED display supplied by Samsung, only to exit the shares as forecasts for that smartphone’s shipments were dialed back. At the time we noted that we still liked Universal’s two-pronged business model comprised of key chemical sales as well as high margin IP licensing.

The good news is that business model remains intact at Universal Display, and we are seeing rising industry capacity for its OLED screens come on line in the marketplace. That was one of the issues that plagued Apple (AAPL) — tight capacity levels that made the OLED display one of, if not the, most expensive components of the iPhone X. With Apple slated to introduce two new OLED smartphone models in a few months, odds are it has tackled those supply issues. Commentary from display equipment maker Applied Materials (AMAT) suggests that to be the case. The notion that Apple isn’t the only driver of OLED demand also remains true given other smartphone manufacturers, including Samsung, Huawei, and Xiaomi, are introducing new models that feature OLED displays, while new TV models incorporating the technology are also hitting shelves later this year. Longer-term, I continue to see OLED technology following the roadmap laid our by light emitting diodes (LEDs) into automotive, specialty lighting and ultimately general illumination replacing traditional lighting and LEDs along the way.

What this means is an expanding array of applications that will grow Universal’s addressable market for the IP business while increasing demand for its chemical business. A very nice push-pull that drives revenue and profit growth over the coming 12-24 months.  As with any company, there are associated risks, and one of them for Universal Display is the risk of slower than expected adoption of OLED technology – we saw that unfold over the last nine months. Another risk is that this disruptive technology itself gets disrupted, which means keeping tabs on new display technology developments.

As we add OLED shares back to the Tematica Investing Select List, we are instilling a $150 price target. That target is based on EPS growth to $3.83 in 2019, up from $1.83 this year and $0.94 in 2015 equates to a compound annual growth rate of 37% over the 2015-2019E time frame. On a price to earnings growth basis, our $150 target equates to a multiple of 1.2x — hardly rich, but in my view one that reflects the protracted demand ramp we encountered during the first half of 2018.

That assessment doesn’t factor in the more than $9.50 per share in net cash on Universal’s balance sheet, which should grow in the coming quarters due to a combination of cash flow and licensing payments. I’d be remiss if I didn’t mention the company’s dividend, but with it clocking in around $0.06 per share per quarter, it’s not going to be a major factor in assessing the share price or for lining shareholder pockets.

  • We are adding Universal Display (OLED) shares back to the Tematica Investing Select List as part of our Disruptive Innovators investing theme with a $150 price target.

 

Examples of companies riding the Disruptive Innovators investment theme tailwinds include:

  • Amazon (AMZN)
  • Applied Materials (AMAT)
  • Cree (CREE)
  • Dropbox (DBX)
  • Grub Hub
  • Interdigital (IDCC)
  • Lyft
  • Nokia (NOK)
  • Nuance Communications (NUAN)
  • Qualcomm (QCOM)
  • Skyworks Solutions (SWKS)
  • Spotify (SPOT)
  • Stamps.com (STMP)
  • Synaptics (SYNA)
  • Uber
  • Universal Display (OLED)

 

 

 

Adding a Glass Disruptor to the Tematica Investing Select List

Adding a Glass Disruptor to the Tematica Investing Select List

Key Points from this Post:

  • We are adding shares of Disruptive Technologies company Corning (GLW) to the Tematica Investing Select List with a Buy rating and a long-term price target of $37.

  • Paired with the current dividend yield, the shares offer 25% upside to that target.

 

Recently, Apple (AAPL) unveiled its new iPhone models, both the iPhone 8 and the iPhone X each are designed to have a glass backing. If history holds, odds are this additional glass backing will lead to more iPhone repairs as users drop their iPhones (and yes, we noticed Apple bumped up its Apple Care prices for screen replacement with the new all glass models). Aside from that potential nuisance, others attending the Apple event had this to say:

“The iPhone 8 and 8 Plus look pretty much the same as their predecessors, but they have a new back cover that’s coated in glass and gives them a somewhat fresher look. The glass blends into the sides of the phone incredibly well, better than we’ve seen on other phones. There’s a subtle density to the glass, too, and overall it looks a lot better than the back of the 7. That glass back allows for wireless charging, which is one of the big new features here.”

As one might expect, Apple was on record saying the iPhone 8 and iPhone 8 Plus have “the most durable glass ever in a smartphone, front and back.” While we have yet to feel the device ourselves, the specs suggest the added heft could be due to a denser glass. The iPhone 8 and iPhone 8 Plus are slightly heavier at 5.22 ounces and 7.13 ounces respectively, compared to 4.87 ounces and 6.63 ounces for the iPhone 7 and iPhone 7 Plus respectively.

The key here is Apple’s shift to glass will likely drive incremental glass demand, much the way its shift to organic light emitting diode displays with the iPhone X is spurring demand for those products, and in turn driving up the share prices of Tematica Select List stocks Universal Display (OLED) and Applied Materials (AMAT). If Apple sticks to its knitting it means deploying wireless charging across other iPhone models and perhaps iPads in the coming quarters. If we’re right that would lead to even more glass demand as the glass is required for such charging, rather than a metal or plastic form factor.

Outside of Apple, we’re also seeing larger and larger format TVs come to market that are also driving demand for glass, while fiber to the home is driving glass demand as well. Let’s remember that wireless backhaul is also a big consumer of glass and 5G has the potential to up the ante for glass fiber. We also suspect there will be a fair amount of smartphone copycats that offer front and back glass on new smartphone models as well in the coming months. Again, more demand for glass, specialty materials and coatings.

All of this bodes very well in our view for specialty glass and ceramics company, Corning (GLW), which derives 80% of its revenues and profits from the display, optical communication and specialty materials markets. In our view, these material science capabilities at Corning’s are one of the keys to enabling both new form factors as well as connectivity solutions, including wireless charging. As such we see the company primarily riding tailwinds associated with our Disruptive Technology investing theme, even though evidence of man-made glass dates back to 4000 BC and Corning as a company was launched in 1851.

We see Corning’s position in our Disruptive Technologies theme cemented by comments from Apple, a customer of the company’s glass products, when it said, “Corning is a great example of a supplier that has continued to innovate and they are one of Apple’s long-standing suppliers… This partnership started 10 years ago with the very first iPhone.” While “talk may be cheap,” in May Apple announced Corning would be the recipient of $200 million from Apple’s new Advanced Manufacturing Fund to support Corning’s R&D, capital equipment needs and state-of-the-art glass processing. Our thinking is if Apple calls you a disruptor, you pretty much are one. As far as the other 20% of Corning’s revenue, it is derived from businesses that serve environmental and life science markets.
 

Why Now is the Time for Corning Shares

Current estimates have Corning delivering EPS of $1.70 this year, up from $1.55 in 2016, with consensus prospects calling for EPS of $1.84 next year and $2.00 in 2019. What those figures don’t show is that for the last year plus, Corning has been consistently beating expectations. Paired with the demand drivers we noted above as well as its pledge to return significant cash to shareholders through 2019 in a combination of share repurchases and dividend increases, we are more than just warming up to GLW shares.

While we like the company’s position and prospects, the shares are currently trading at 17.3x and 16.3x expected 2017 and 2018 earnings vs. the average peak P/E multiple of 17.2x over the last few years. This would suggest our upside near-term is limited, but we’ve also learned long ago not to examine just one valuation tool when looking to value a stock. Turning to a dividend yield analysis, the shares have peaked in recent years at an average dividend yield of 1.95%. Applied to the slated 2017 dividend per share of 0.64, this offers us upside to $33 vs. downside near $23 using the average trough dividend yield of 2.8%.

Now here’s the thing — on Corning’s recent 2Q 2107 earnings call, management committed to increasing its annual dividend by at least 10% in both 2018 and 2019. Some quick math shows an annual dividend of at least $0.70 per share next year and $0.77 per share in 2019. Given Corning’s net cash balance sheet — $4.2 billion in cash and equivalents vs. total debt of $3.9 billion) and strong cash generation, the company has ample breathing room for these targeted dividend increases.

Applying those peak and trough average dividend yields kicks out a price target range of $36-$39 and potential downside of $25-$27. That’s a far more palatable upside to downside tradeoff for longer-term investors as glass demand ramps in the coming quarters due to rising demand from a variety of markets and applications. As we see it today, those factors should lead to continued EPS growth in 2018 and 2019, helping support those respective price ranges.

  • We are adding shares of Corning (GLW) to the Tematica Investing Select List with a Buy rating and a long-term price target of $37.
  • Paired with the current dividend yield, the shares offer 25% upside to that target.
SPECIAL ALERT: Exiting CalAmp shares and booking another hefty win

SPECIAL ALERT: Exiting CalAmp shares and booking another hefty win

Key Points from This Alert:

  • We are issuing a Sell rating on shares of CalAmp Corp. (CAMP) and exiting the position on the Tematica Investing Select List.

  • With this action, CAMP shares have generated a blended return of 39% vs. 14.8% for the S&P 500 since we first added the CAMP position in August 2016.

 

Over the last few weeks, we’ve seen a sharp rise in CalAmp (CAMP) shares. This likely reflects the pending compliance mandate with Electronic Logging Devices (ELDs) that is currently set for later this year. We say “currently set” because there are efforts underway to derail the December 18th deadline, and more mega-fleets are requesting exemptions to the mandate.

Generally speaking, compliance with regulatory mandates tends to pull demand forward, after which is tails off and hits both revenue and profits. In the case of CalAmp, the shares are now less than 5% from our $21 price target, and we would rather book these stellar returns than keep hanging on for modest upside, only to be burned. Call it the prudent investor in us, but the market issues we recently highlighted are still intact, and we’re seeing GDP estimates for the current quarter revised lower following hurricanes Harvey and Irma. We expect the coming weeks will see corresponding EPS cuts that could weigh on the market. Rather than wait for that to happen, let’s take the money and be patient for our next recommendation.

 

 

 

Yet again, boosting our price target on Universal Display

Yet again, boosting our price target on Universal Display

KEY POINTS FROM THIS POST:

  • We are boosting our price target on Universal Display (OLED) shares to $175 from $135 given the increasingly apparent shortage in organic light emitting diode displays.

  • Maintaining our price target of $55 on Applied Materials (AMAT).

Over the last week following the introduction of the organic light emitting diode display (OLEDs) contained in Apple’s (AAPL) new iPhone X, Universal Display (OLED) shares on the Tematica Investing Select List have come into focus.

How into focus?

Even USA Today ran an article on the iPhone X that cited the current OLEDs shortage as the reason behind the later than expected shipping date for that new flagship Apple (AAPL) smartphone:

“OLED manufacturers can’t build the screens fast enough as they increasingly pop up on smartphones, high-definition TVs, watches, virtual reality headsets and other gizmos. It’s an issue that not only is dogging Apple, costing it billions of dollars in short-term sales, but has tripped up Samsung, HTC and Google, too.”

The article goes on to discuss OLED display dynamics, as well as the demand for the technology from larger format TVs and prospects for other applications. On the heels of that article, we are hearing chatter among traders that Wall Street firms are turning increasingly bullish on Universal Display shares, hence the “pop” in the share price over the last few days — opening above $140 at the bell this morning.

From our perspective, this is not necessarily new information and we’ve suspected that as the Apple event came and went, the herd would recognize Universal Display’s position in the OLED display industry. As the herd once again catches up to us, we’re going to leap ahead of them yet again by boosting our price target on Universal Display shares to $175 from $135. This new price target, which equates to 1.0x on a price to earnings growth basis when applied to consensus 2018 EPS expectations of $2.85 up from $1.10 in 2016, offers just over 20% upside from current levels.

  • We are boosting our price target on Universal Display (OLED) shares to $175 from $135.

 

As we boost this price target, we should also keep in mind the current organic light emitting diode capacity crunch bodes well for display equipment demand at Applied Materials (AMAT). As a reminder, Applied Materials is holding its 2017 Analyst Day on September 27th, and we expect a bullish update on both its display business as well as its semiconductor capital equipment one.

  • Our price target on Applied Materials (AMAT) shares remains $55

 

 

SPECIAL ALERT – Adding Nokia shares to the Tematica Select List

SPECIAL ALERT – Adding Nokia shares to the Tematica Select List

 

  • We are issuing a Buy on  Nokia Corp. (NOK) shares with an $8.50 price target.

  • At this time, there is no recommended stop-loss level and we would look to scale into the shares aggressively near $5.50.

 

Yes, you are reading that correctly. After recently adding Nokia Corp. (NOK) shares to the Contender List, we are now adding them to the Tematica Select List given continued progress in its higher margin, intellectual property (IP) business, Nokia Technologies. We’ve seen the power of this Asset-Lite Business Model investment theme before with Qualcomm (QCOM) and InterDigital (IDCC) and it has the power to not only transform Nokia, but deliver EPS  upside relative to expectations.

To jog people’s memory, in the most recent quarter the Nokia Technologies division accounted for 7% of Nokia’s overall revenue, but delivered 37% of operating profit. To be clear, we like the operating leverage in this business. In the coming quarters, we also expect Nokia to benefit from continued wireless infrastructure buildout from both existing 3G and 4G networks as well as eventual deployments on 5G networks.

 

So why add NOK shares to the Select List now?

Early this morning it was announced Nokia won an arbitration battle against LG Electronics, which follows recent deals with Samsung, Apple (AAPL) and Xiaomi Electronics, a Chinese smartphone company. From LG Nokia will receive both a one-time payment, which was not disclosed, as well as recurring revenue that is expected to be in the realm of $275-$300 million. This is a meaningful bump to Nokia’s IP, which had sales of 616 million euros in the first half of 2017, and gives far more comfort in the likelihood of the company hitting 2018 EPS expectations of $0.37, up from this year’s consensus EPS of $0.30. Also too, as Nokia continues to stack up licensees, it becomes increasingly easier to win over its remaining IP targets.

Our price target on Nokia shares is $8.50, which equates to 23x expected 2018 EPS or 1.0 on a price to earnings growth ratio (PEG) basis using the company EPS growth over the 2016-2018 time frame. Given the degree of upside to be had, we are adding NOK shares to the Select List with Buy. At this time, there is no recommended stop-loss level and we would look to scale into the shares aggressively near $5.50.

Over the coming quarters, we expect to see more movement in the company’s wireless infrastructure business as 5G moves from testing and beta to deployment. With Nokia Technologies, the company has booked some impressive wins, and it can turn its attention to Huawei, which according to data compiled by IDC is now the third largest smartphone vendor behind Samsung and Apple. Also, as Apple brings augmented reality into the mainstream with its new iPhone models and does the same with health applications with Apple Watch, this opens the door for other technology licensing opportunities at Nokia given its portfolio of connected health, augment and virtual reality as well as other technologies. What this will require is patience with the shares, but given we are not only thematic investors but ones that have a longer than the herd time horizon that’s just fine with us.

 

 

WEEKLY ISSUE: Thematic Tailwinds Blow Strong, Even as Market Fundamentals Bring Concern

WEEKLY ISSUE: Thematic Tailwinds Blow Strong, Even as Market Fundamentals Bring Concern

Even though our concerns over the underlying fundamentals of the market remain — especially amidst this most recent rebound — thematic tailwinds continue to propel several of our positions on the Tematica Select List, particularly those tailwinds for the Cash-Strapped Consumer and Connected Society investment themes.

 

The week started off in rebound mode for the stock market. The damage from Hurricane Irma, while severe with several million people still without power, was far less than the devastation many forecaster models had been predicting. That sigh of relief sent stocks climbing on Monday and put the major market indices back to new record highs. While many likely cheered that rebound — especially those investors that have only recently returned to the market — several underlying dynamics remain, which could make for potential trouble in the coming weeks.

Those concerns are the same items we recapped earlier this week as part of our thought process behind Goldman Sachs (GS) CEO Lloyd Blankfein sharing the current market environment has him “unnerved”. Unfortunately, these items did not fade with the passing of Irma, nor are they likely to and in the case of market’s stretched valuation, the rebound is only exacerbating things further. Furthermore, we have yet to see any markedly downward revisions into GDP forecasts for the current quarter, despite the tens of billions in hurricane damages and business interruptions. Hardly surprising, given the regional Federal Reserve banks adjust their forecasts to published economic data and the impact of the two storms has yet to turn up in the data. But it will in the coming weeks, just the way it did in the August auto & truck data, and will in the August Retail Sales data out later this week.

From the perspective of the Tematica Select List, we continue to see the August Retail Sales report putting some much-needed perspective around Costco Wholesale (COST) shares given the simply stellar monthly comparable sales figures the company has been delivering.

  • We continue to rate Costco Wholesale (COST) shares a Buy with a $190 price target.

 

When Market Concerns Arise, Relying on a Thematic Approach is Even More Crucial

Amid the noise in that retail sales data, we suspect our Connected Society theme and our Amazon (AMZN) shares will be share gainers from the recent Back to School shopping season. That’s also a positive for the position in United Parcel Service (UPS) that is on the Tematica Select List, and we see those shares being strong performers once again in the upcoming holiday shopping season that increasingly includes Halloween.

As crazy as it may seem, in 2016 American spent roughly $8.4 billion on Halloween. We’re already seeing rows and rows of Halloween candy line our grocery stores, even though soda manufacturers like Coca-Cola (KO) and PepsiCo (PEP), and now sports drinks companies, are looking to reduce sugar content in their offerings. We see the unsweetening of the beverage category continuing to benefit our position in International Flavors & Fragrances (IFF) as manufacturers look to replace that oh so yummy sugar taste with other appealing, yet healthier, solutions. Should the move to limit sugar spill over into candy and other confections, it would be another shot in the arm for IFF shares and potentially McCormick & Co. (MKC) as well. We’ll be talking more on this during this week’s Cocktail Investing Podcast.

 

  • We continue to rate shares of Amazon (AMZN) a Buy at current levels, and our price target remains $1,150.
  • United Parcel Service (UPS) shares, up more than 14% since being added to the Tematica Select List, are now less than a handful of dollars away from our $122 price target. As such, we rate UPS shares a Hold at current levels. As a reminder, that’s a true Hold, not Wall Street speak to exit the shares.
  • The same can be said with International Flavors & Fragrances (IFF) shares, which are up nearly 17% on a blended basis. Our price target on IFF shares remains $145, however, we are revisiting this target with an upward bias.
  • Our price target on McCormick & Co. (MKC) shares remains $110.

 

 

Looking Ahead to the End of the 3rd Quarter

When we exit this week, we will have two weeks left, not only in September, but in 3Q 2017 as well. It means in roughly a month’s time, we will once again be back in the quarterly earnings deluge. Given what I discussed above, I’ll be watching and listening as companies issue business updates over the next few weeks due in part to Harvey and Irma, and putting it into perspective for Tematica Select List positions. While the debt ceiling conversation has been kicked down the road until December, next week’s Federal Reserve monetary policy meeting, which is likely to leave interest rates unchanged, should clue us a bit more into the Fed’s balance sheet unwinding timetable.

Finally, while you start preparing your holiday shopping lists, I expect the political battles in Washington will once again flare up as the 2017 election season kicks into gear, just as Team Trump looks to make its case, hopefully with some concrete details, for tax reform. Giving a shot in the arm to potential political uncertainty, this morning North Korea showed trademark defiance over new U.N. sanctions imposed after its sixth and largest nuclear test.

The bottom line is we’ve seen volatility return to the market in September, and there are reasons to think we will see more of it before we enter 4Q 2017 in just a few weeks. While we continue to turn over new candidates for the Tematica Select List, we’ll continue to be patient until those potential positions have the right mix between potential upside vs. downside. Like always, our thematic lens will continue to be our North Star.

 

 

The Silver Lining in Apple’s Otherwise Lame Special Event

Some quick words on Apple’s (AAPL) special event yesterday – it was lame!

As we feared, not only did the company’s latest products show off iterative at best features, the presentation was less than enthusiastic, as was the reception by attendees at the new Steve Jobs Theater. Candidly when Apple began talking about its new retail footprint and then started the iPhone conversation with new colors, we had a feeling it was all about to go downhill. And we were right. What ensued was a noticeable groan be it for the lack of compelling new features or the fact that Apple’s “one more thing” – the iPhone X – and its $1,000 price point won’t begin shipping until early November, far later than anyone had expected.

While we missed the move in Apple shares in recent months, we see yesterday’s underwhelming event serving as a reminder that at least for now, Apple’s business remains reliant on the slower growing smartphone market. Odds are Apple will continue to gain incremental share and generate significant cash, but the opportunity for real growth from here hinges on either a new business category or a new must-have product from an existing one. As we shared earlier this week, neither of those appears to be on the near-term horizon. Given several thematic tailwinds that power its various businesses, we’ll continue to look for an opportune entry point, but for now, it looks like the shares will fall victim to “buy the rumor, sell the news.”

 

Now for the better news…

Just because growth is lacking at Apple, there were several announcements yesterday that bode rather well when it comes to growth for Universal Display (OLED) and AXT Inc. (AXTI). Regarding Universal Display, Apple did announce it is adopting organic light emitting diode displays in the iPhone X with its Super Retina Display, however, again, that product is not set to ship until early November. This likely means a modest push out in expectations. We see that, however, as a modest bump in the road for the capacity constrained organic light emitting diode industry that is hog tied due to demand from not only Apple but other smartphone vendors as well as other applications (TVs, wearables, interior automotive lighting). If Apple follows its historical pattern, and we think it will, we expect the Super Retina Display to make its way down the lineup into other iPhone models as well as those for iPads as supply eases and newer iterations are introduced.

While Apple’s didn’t specifically point to a display capacity shortage as the culprit behind the later than expected ship time for the iPhone X, its timetable when paired with recent comments from Applied Materials (AMAT) certainly suggest the industry remains constrained relative to demand. Moreover, with applications such as TVs calling for larger display sizes vs. those for smartphones and wearables, the industry is likely to be constrained for some time, especially as more TV vendors look to bring more models featuring that technology to market over the coming quarters. We see that as a good problem for Applied Materials and its display equipment business. The next update from Applied will be at its 2017 Analyst Day on September 27, and we expect an upbeat tone not only for its display business but from its semiconductor capital equipment one as well.

  • Currently, Universal Display (OLED) shares are up a whopping 149% since we initiated the position in October, and in many respects, the outlook continues to brighten.
  • As we move into 4Q 2017 and with increasing clarity on the growing number of applications we will be revisiting our $135 price target, odds are with an upward bias.
  • We continue to be bullish on Applied Materials (AMAT) shares and our price target remains  $55.

 

Turning to AXT Inc (AXTI), Apple did announce it was bringing standalone wireless connectivity to its latest Apple Watch. In order for that to happen, Apple has to pack the device with cellular technology, which means RF semiconductors that are based on AXT’s compound substrates. This is one more step in the expanding array of connected devices under the Internet of Things umbrella. From our perspective, the untethering of Apple Watch from the iPhone makes this newest model the one consumers are most likely to desire. While it’s still not enough to move the needle for Apple, it does move it for AXT.

  • We will use this incremental demand to bump our price target on AXT (AXTI) shares to $11 from $10.50. The added upside keeps our Buy rating on the shares in place.

 

On a disappointing note . . .

There was no update on Apple Pay in yesterday’s event, other than how with its new iPhone X it is utilizing its new Face ID technology as part of the payment process with Apple Pay. We were hoping for a more meaningful update given our position in USA Technologies (USAT), but we’ll happily settle for the news coming out of CVS Health (CVS) that it is utilizing new vending machines at “select landmark locations to outside of its store footprint. These machines will be stocked with things like over-the-counter medications, beauty and personal care products, eye care and oral health care products, first aid items, batteries, phone chargers, earbuds, and healthy snacks and beverages. We see this as yet another expansion in the unattended retail market that hinges on cashless consumption that is enabled by USA’s products and services.

  • Our price target on shares of USA Technologies (USAT) remains $6.

 

Here’s what we’ll be watching for at today’s Apple special event

Here’s what we’ll be watching for at today’s Apple special event

Several of the Disruptive Technologies investment theme companies currently on the Tematica Select List will play a key role in the Apple Special Event scheduled for Tuesday, September 12th. In all likelihood the companies themselves will never be mentioned during the event, but with expectations once again running high ahead the next generation iPhone, here’s what we’ll be watching for as it pertains to the Tematica Select List.

 

Early this afternoon, Connected Society and smartphone reliant Apple (AAPL) will hold its next special event that is widely expected to unveil a bevy of new products, including its latest iPhone models. Much has been made over the last few days of “leaked information” over these new models as well as new iterations for Apple TV and Apple Watch, but as exciting as those other new products may be because the iPhone is the majority of Apple’s revenue and profits odds are investors will focus their attention on those new models.

While we don’t own Apple shares, and we touched on at least one of those reasons yesterday, there are several companies on the Tematica Select List that will be affected by today’s special event – Universal Display (OLED), Applied Materials (AMAT), and AXT Inc. (AXTI) as well as USA Technologies (USAT) and Nuance Communications (NUAN).

 

Universal Display (OLED) 

As subscribers should be aware, Universal Display is a Disruptive Technology investment theme company that supplies needed chemicals and intellectual property utilized in the manufacturing of organic liquid crystal displays (OLEDs). Over the last few months, there has been much talk of ramping demand in an industry that is capacity constrained as Apple begins to adopt the technology in the iPhone while other applications (other smartphone vendors, TVs, wearables and automotive interior lighting) continue to replace existing lighting and displays with OLEDs. There are now indications that Apple is likely to introduce OLEDs in its new premium iPhone, purportedly the iPhone X.

The issue, however, is that it is being reported that the manufacturing of iPhone X device is currently capped at around 10,000 units per day and may not begin shipping until next month. This could be due OLEDs supply constraints, but if this speculation over the iPhone X turns out to be true, we could see a pullback in our OLED shares, especially following the more than 18% move in the last month alone that has the shares bumping up against our $135 price target. We continue to think that as the adoption of OLEDs continues to ramp up, we will see a step-function higher in our price target for Universal Display shares, but in the near-term, our concern is that rapid climb in the share price could hit a “buy the rumor, sell the news” wall following Apple’s event. If such an outcome occurs, our view is subscribers should continue to hold OLED shares for the long-term. If the shares retreated to the $110-$115 level, which would be a sharp pullback, we would view that as another bite at the apple for subscribers that have so far held off buying OLED shares.

  • Our price target on Universal Display (OLED) shares remains $135
  • For now, subscribers that have missed out on OLED shares should look to scoop them up between $110-$115.

 

Applied Materials (OLED) 

If the supposition that Apple’s iPhone X production is capped because of capacity constraints for OLEDs, we see that being a resounding positive for shares of Disruptive Technology company Applied Materials (AMAT). As a reminder, Applied not only manufactures semiconductor capital equipment (the machines that make chips) it does the same for displays, including OLEDs. Applied has been rather frank about the robust demand for OLEDs, and it remains one of the reasons we are bullish on AMAT shares. Others include rising memory demand as well as ramping in-country semiconductor capacity in China.

  • Our price target on Applied Materials (AMAT) shares remains $55.

 

AXT Inc. (AXTI)

We would be surprised to hear Apple talk about 5G wireless technology, which would require several additional layers of RF semiconductors, largely because most wireless carriers like AT&T (T), Verizon (VZ) and T-Mobile USA (TMUS) are still testing the technology. If, however, the Apple Watch is updated to include LTE wireless technology, that would be a source of new demand for RF semiconductors, like those from Skyworks Solutions (SWKS) and Qorvo (QRVO). In turn, that means those companies, as well as other RF semiconductor suppliers of Apple’s, would require additional compound semiconductor substrates from AXT Inc. (AXTI). While we still see the eventual deployment of 5G networks that will drive incremental RF semiconductor demand as the key driver longer-term for AXT’s business, incremental demand from devices like Apple Watch is certainly welcome.

  • Our price target on AXT Inc. (AXTI) shares remains $10.50

 

USA Technologies (USAT) & Nuance Comm. (NUAN)

Finally, during today’s presentations, we’ll also be watching and listening for incremental news on USA Technologies (USAT), an Apple Pay partner, as well as Nuance Communications (NUAN). In iOS 11, Apple will continue to expand the services offered through Apple Pay, and we expect to hear at least some usage statistics from Apple CEO Tim Cook today. With Nuance, voice continues to become the new interface of choice across new applications from smart speakers to chat-bots, like those being rolled out by Google (GOOGL), Facebook (FB) and yes, Apple, and that keeps us bullish on NUAN shares.

  • Our price target on USA Technologies (USAT) shares remains $6
  • Our price target on Nuance Communications (NUAN) remains $21.

 

 

 

Once again, the herd catches up on Universal Display (OLED) shares

Once again, the herd catches up on Universal Display (OLED) shares

After languishing for several weeks, shares of Disruptive Technology company Universal Display (OLED) shares over the last two days popped $16, or more than 14%, to finish close last night at $127.10. The catalyst for the move was Deutsche Bank initiated coverage on the company with a Buy rating and a price target of $135, in line with our own.

While we like the herd catching up to our way of thinking, the surge in the shares comes with less than two weeks until Apple’s (AAPL) next iPhone event on September 12. We suspect over the next two weeks the iPhone rumor mill will be once again cranking up, with much chin wagging over the number of models, form factors and how many models will be employing an organic light emitting diode display. This likely means that at least in the short term, OLED shares are likely to melt higher, but as we’ve seen many, many times the devil is in the details when it comes to Apple’s new products. That means expectations in the near-term could get ahead of themselves, and we note this with 6% upside to our $135 target.


Make no mistake, we continue to see a bright future ahead for Universal Display and its organic light emitting diode chemicals and IP business over the coming quarters as the number of applications climbs alongside increasing screen sizes for smartphones and TVs. This has us long-term bullish on the shares, and while it’s likely that we might have to raise our price target on OLED shares again before the end of 2017, the risk we run in the very short-term is the shares are ahead of themselves at least temporarily.

Could this result in a “buy the rumor, sell the news” set up given Apple’s upcoming event? It’s possible, but given the medium- to longer-term growth prospects, we would see that as an opportunity for those that have missed out on scooping the shares thus far. As we’ve shared in the last few weeks, the $110-$115 share price band makes for a compelling proposition on risk-to-reward trade-off for patient investors. As new data becomes available, we’ll incorporate it into our thinking, including our price target.

  • At current levels, subscribers should “Hold” Universal Display (OLED) shares rather than commit fresh capital.
  • Our price target remains $135, but given expanding market applications for its products and licensing business, we’re inclined to be owners of the shares for the medium to longer term.
Samsung Electronics confirms our thesis on Applied Materials

Samsung Electronics confirms our thesis on Applied Materials

 

Given all the attention that organic light emitting diode displays are getting ahead of Apple’s (AAPL) pending launch of its next iPhone, it’s understandable that Applied Material’s (AMAT) display business would be the center of attention. Early this morning, however, Samsung Electronics confirmed the other key drivers behind our bullish stance on AMAT shares – ramping semiconductor capital spending to not only meet growing global demand for chips but also China’s intent to become a key manufacturing hub for chips.

With Samsung accounting for 12%-18% of Applied revenue stream over the last three years, we see Applied as very well positioned to capture capital spending dollars at Samsung for capacity in China as well as around the globe in the current and coming quarters.

  • Our price target on Applied Materials (AMAT) shares remains $55.

SEOUL (Reuters) – Samsung Electronics Co Ltd expects to invest $7 billion over the next three years to expand its NAND memory chip production in China’s northwestern city of Xi’an, the South Korean tech giant said on Monday. In a regulatory filing Samsung said it approved $2.3 billion of the expected investment of $7 billion on Monday.

The firm accounted for 38.3 percent of global NAND flash memory chip revenue in April-June, the latest data from researcher IHS showed.

China is trying to develop its own memory chip producers but it is likely to be several years before they can compete with existing makers, analysts said. Samsung Electronics said a memory chip boom that propelled it to record profit in the second quarter was likely to continue in the July-to-September quarter.

Source: Samsung Electronics to invest $7 billion to boost China NAND chip output

No Sleepy End of  Summer in Sight

No Sleepy End of  Summer in Sight

 

We’ve survived the eclipse, and while the display was a bit underwhelming outside of the Beltway, we hope you enjoyed this rare experience that pulled 10 percent of US viewers away from Netflix while it was happening. Rest assured the consumers of streaming content that help power our Connected Society investing theme were back on board soon thereafter propelling Marvel’s The Defenders to a binge viewing pop after dropping last Friday. From time to time we may see speed bumps for our Connected Society investing theme, but much like trying to put toothpaste back into the tube, we don’t see a reversal in this tailwind or any other of those associated with our investing themes anytime soon.

If anything, as we break down the monthly retail sales data, examine data points such as the box office take and maneuverings by companies like Target (TGT) and Wal-Mart (WMT), we see that Connected Society tailwind blowing even harder as we head into the 2017 holiday shopping season. This morning it was shared that Wal-Mart is teaming with Alphabet (GOOGL) to bring Wal-Mart products to people who shop on Google Express, Google’s online shopping mall. What’s significant about this news is that it marks the first time Wal-Mart has made its products available in the U.S. on a website other than its own. Also, too, Wal-Mart is embracing aspects of our Disruptive Technology theme as it makes it products available to customers via Google Home (Google’s answer to Amazon’s Echo) as well as Google Assistant, its artificial intelligence software assistant found in smartphones powered by Google’s Android software.

Clearly, Wal-Mart is shoring up its position and investing for where retail continues to head — a path that is increasingly chartered by the Connected Society. To us, this development, along with Nike’s (NKE) recent teaming with Amazon (AMZN), is a clear signal of what’s happening in retail. It also says that lines are being drawn between those partnered with Amazon and those that aren’t. We suspect many will see this as evidence of the “retail-megeddon” that is upending the retail industry. Here at Tematica, however, our view is Amazon and Wal-Mart are in the thematic sweet spot and are positioned to become the Coke and Pepsi of retail.

We also continue to see Costco Wholesale (COST) emerging as the bronze medal winner in retail. The company’s July retail sales metrics certainly showed it is gaining consumer wallet share as it rides our Cash-Strapped Consumerand Rise & Fall of the Middle-Class tailwinds. Plus, Costco’s business model is also based on collecting membership fees, which continue to grow, and thus insulates it somewhat from the struggles of brick & mortar retail. In our view, if Costco were to acquire Boxed.com, that transaction would be a game changer for Costco’s digital shopping business.

  • We continue to have Buy ratings on Amazon (AMZN), Alphabet (GOOGL), Costco Wholesale (COST) shares with price targets of $1,150,  $1,050 and $190, respectively. 

 

 

The No Man’s Land that is the last two weeks of August. 

As we shared in this week’s Monday Morning Kickoff, trading volumes are likely to be lower these next 10 days ahead of the Labor Day weekend.  Of course, while many try to get their last bit of R&R in at a nearby beach or lake, Washington is once again taking center stage. As you have probably guessed that means some back and forth political maneuvering will push the market around over the coming weeks as renewed hopes of U.S. tax reform contend with President Trump threatening a government shutdown if Congress didn’t present him with a spending bill for the next fiscal year that included funding for a border wall. Not exactly the tone we’d like to hear ahead of the debt ceiling negotiations.

While we ultimately think the debt ceiling will be raised, we’re not looking forward to the “deadline is approaching” drama that will likely unfold. Giving us some reassurance, during a public event on Monday in Kentucky with Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell said there was “zero chance — no chance” that Congress would fail to raise the debt ceiling. Of course, that doesn’t mean it’s going to be a walk in the park getting there.

As we watch those developments, we’ve started to get some hints as to what tax reform might look like. Early indications suggest capping the mortgage interest deduction for homeowners, scrapping people’s ability to deduct state and local taxes, eliminating businesses’ ability to deduct interest and allowing for the “repatriation” of corporate profits from overseas. As we’ve seen with the efforts to repeal and replace Obamacare, the devil will be in the details, and more solid ones should emerge in the coming weeks.

Finally, less than a week into NAFTA renegotiations, President Trump has cast doubt on the future of the trade agreement saying, “I think we’ll end up probably terminating NAFTA at some point.” Again, the devil will be in the details, and until those emerge we’re likely to see corporate American hem and haw as it faces several new obstacles that are fanning the flames of uncertainty.

In our view, this is points to a potentially tumultuous next few weeks, low volume end of August followed by September, historically one of the worst months for the stock market. From a Tematica Select List perspective, we’ve seen the recent volatility ding some of the positions, but we remain comfortable given the confirming data points that we are seeing.

For example, during his address Monday night, President Trump announced a new strategy that calls for sending more troops to Afghanistan. Trump provided few specifics about his policy and how much the U.S. military commitment in the region would increase as a result. The decision, however, to further commit rather than withdraw equates to a tailwind for defense spending that is a part of our Safety & Security investing theme. Also, this week, security researchers have discovered several apps on the Google Play store harboring malware, another reminder of the downside to our increasingly Connected Society that provides lift for the cyber security aspect of our Safety & Security investing theme. As we look for details on incremental defense spending, we’ll continue to recommend subscribers add PureFunds ISE Cyber Security ETF (HACK) shares to their holdings if they haven’t already done so.

  • We continue to have a buy on PureFunds ISE Cyber Security ETF (HACK) shares with a long-term price target of $35.

 

 

More Tailwinds for OLEDs

Last week, as it reported a solid earnings beat and raised its outlook for the balance of the year, Applied Materials (AMAT) had several bullish things to say on organic light-emitting diode display demand:

“Display is growing even faster than wafer fab equipment as customers make multi-year investments to address large inflections in both TV and mobile. In TV, a major push to new Gen 10.5 substrates is under way. These huge, 10- square-meters substrates are ideally suited for manufacturing larger-format screens, 60 inches and bigger. We now expect 30 new Gen 10.5 factories to be built over the next several years. At the same time, mobile organic light-emitting diode (OLED) display investment is getting stronger as customers prepare for broad adoption of OLED in smartphones. OLED enables new form factors that result in a larger display area for smartphone, further expanding the overall market.”

We could not have summed it up better ourselves, and that report keeps us bullish on both AMAT and Universal Display (OLED) shares despite the recent pullback both have experienced.

  • We continue to have Buy ratings on both Applied Materials (AMAT) and Universal Display (OLED) shares with prices targets of $55 and $135, respectively

 

USAT Beats Expectations and Offers Bullish Outlook

Yesterday, shares of Cashless Consumption company USA Technologies (USAT) popped in early trading following an earnings and revenue beat for the June quarter. More specifically, the company beat bottom line expectations by $0.01 per share and topped revenues with $34.3 million, $3.2 million ahead of consensus forecasts, and up more than 55% year over year. Ticking through the press release there were a number of positive connection and customer metrics shared by the company and as expected the company offering a bullish outlook for the coming quarters.

That’s the good news.

The less good news is the company fell short when it came to discussing the impact of its recent stock offering that was completed in late July. Yes, during the current quarter, and we find that somewhat disappointing. The company did say, however, that it plans to “to take advantage of opportunities both organic and inorganic that may present themselves in this rapidly evolving landscape” and that means an acquisition or more. When peppered on the earnings conference call, USAT shared that it would seek acquisitions to “enhancing our offering with additional value-added services or allowing us to expand into additional verticals or geographies to drive further growth.”

Not a bad development by any stretch, but it is one that raises some unknowns, particularly for a small company. As we’ve heard many a banker say, the headaches associated with small acquisitions are the same ones with big ones, the only difference is the size of the fee. Given the size of the business as well as the team, the question is will USAT undertake nip and tuck acquisitions that add to its capabilities and expand its footprint or would it look to make a bolder move, potentially swallowing a larger player? We’re fans of the former, while the latter tends to result in some of those headaches such as product, facility, technology and spending integration and rationalization, as well as layoffs.

Given the global proliferation of mobile payments and the first-hand experience I had in Singapore, we’re going to stick with USAT shares for the time being. Based on any potential acquisition, we’ll look to digest the implications and what it may mean for holding the shares.

  • Our price target on USA Technologies (USAT) shares remains $6.

 

 

Disruptive Voice Technology Continues to Take Hold

Last night we shared the news that Barclays (BRC) has enabled voice payments to be made using Apple’s (AAPL) Siri functionality. This is another step forward in the disruptive use of voice technology as an interface across smartphones, intelligent speakers and soon other applications. As more and more applications come to market, we continue to be bullish on shares of Nuance Communications (NUAN) despite the slow tumble they’ve experienced over the last several weeks. As a reminder, the company has inked technology deals with Apple as well as Facebook (FB) to power their respective messaging chat bots even as the use of voice technology proliferates.

  • We remain bullish on Nuance (NUAN) shares, and our price target stands at $21.

 

 

Even Though DY Remains in Radio-Silence, We Continue to Be Patient

Next week Dycom Industries (DY) will report its quarterly results on Wednesday morning (August 30). Despite the ever-increasing need to add incremental wireless capacity and build out next generation wireline networks, in part for wireless data backhaul, to keep up with data demand, DY shares have sunk some 28% over the last three months. This equates to a round trip in the position from a high of just over $110 back to our blended cost basis of $76.68 on the Tematica Select List.

Frustrating to say the least. That frustration is compounded by the lack of news to be had from the company. Its last communique was at the Stifel Industrials Conference back in June. We know network spending at its key customers — AT&T (T), Verizon (VZ) and Comcast (CMCSA) — remains on track as they look to bring incremental 4G and gigabit internet capacity on stream, while beta-ing 5G capacity. Comcast’s recent launch of Xfinity Wireless also likely means additional wireless capital spending will be had in the coming quarters.

  • We’ll continue to be patient with Dycom Industries (DY), which is hovering in oversold territory.
  • Should the shares retreat further into the mid-$60s, we’re inclined to once again scale into the position, improving our cost basis along the way.