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The Semi-Conductor Food Chain

After the Dow’s 1,500 point rally from its lows, what should you do now? Cramer urges you not to be lured by cheap companies that have bounced simply because the market got too bearish. Instead, focus on companies based on the fundamentals that demonstrate the business performing better than expected. With 30 years of trading experience under his belt, Cramer says the best thing to do after a tremendous rally is to fall back on stocks with improving fundamentals.

And the best bet may be in the most speculative looking stocks out there - small semiconductor companies. Cramer points out that Taiwan Semi , the world’s largest build-to-order semiconductor foundry, which is up 13.2% since he recommended it on March 11th, and Xilinux are both moving on better than expected numbers, not just macro moves in the market. These companies indicate that there is a real turn happening in the semis.

Although you still need to do your homework, Cramer points to an especially attractive semiconductor stock that he sees as a close relative of Taiwan Semi - a small, speculative semiconductor company called Siliconware Precision Industries.

Truly speculative at just over six dollars, SPIL also offers a juicy 8.5% yield. And if you’ve been keeping up on his Taiwanese business news, specifically from DigiTimes, the trade paper for Chinese and Taiwanese technology companies, you’d also know that SPIL announced a 29% revenue growth for March.

Where does this company fit into the tech food-chain? SPIL is what’s known as a backend semiconductor contract manufacturer. Basically, it provides packaging, assembly and test services to more than a hundred customers worldwide, including Intel , Broadcom, AMD, NVIDIA, SanDisk, Marvell Tech and Xilinx.

And now that we’re seeing a recovery in the semis, Cramer thinks SPIL is positioned to benefit. Many companies in the business have indicated that December was their worst month, and, like Taiwan Semi, they’ve been receiving rush orders since January.

SPIL’s numbers are truly better than expected, unlike many other stocks that have simply gone higher because the street has become more bullish about the market. SPIL’s accumulated first quarter sales are now expected to fall 26% sequentially, much better than the previous expectations for a 35% decline.

In the second quarter the analysts now think that SPIL’s sales could grow by 15% to 20% thanks to resumed orders for a range of products. In February analysts expected SPIL’s utilization rate would fall below 45%, but now it looks like the company’s utilization rate climbed to between 55% and 60% in March.

On its last earnings call SPIL said that it saw no signs of a recovery in the near term. The recovery was not anticipated by anyone, including the companies, and that’s precisely why Cramer thinks SPIL, and the other companies that are involved in the semiconductor food-chain, are so attractive right now.

Watch the video to check out other reasons why Cramer thinks SPIL is a terrific speculative way to play the recovery.


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