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Sometimes a stock makes more sense after it has had a big run, Cramer said Tuesday, rather than before. Case in point: Tessera Technologies.
Tessera [TSRA
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] operates in the semiconductor miniaturization business. Basically, the company reduces the space needed for chips, thereby making possible much smaller gadgets. The stock is up about three and a half points after a May 20 ruling by the International Trade Commission, which decided in Tessera’s favor in a patent-infringement case. Now Qualcomm [QCOM
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], Motorola [MOT
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] and Freescale Semiconductor [FSL
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] – as well as other firms who have since been ordered to stop selling copycat products – will all have to pay Tessera licensing fees. These royalties should total $60 million in 2009 alone.
Investors can see then why Cramer likes Tessera at $20.17 more than $16.61. The what-if that really could have hurt the company has been removed. With that great weight off Tessera’s back, the stock has become much more attractive. And Cramer thinks there is still plenty of upside to be had, especially considering the share price was $40 before the lawsuit was filed.
Beyond the legal victory, though, Tessera plays into Cramer’s endorsement of speculative tech names to profit from that sector’s continuing rally. While he likes Apple [AAPL
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], Google [GOOG
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], Amazon [AMZN
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] and Research in Motion [RIMM
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], he thinks smaller companies like Tessera could offer bigger returns. That certainly has been the case in other semiconductor companies such as Brocade [BRCD
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], Starent Networks [STAR
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], Cadence Design Systems [CDNS
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], Tekelec [TKLC
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] and ON Semi [ONNN
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], all of which are up an average of 9.1% since Cramer’s early May call.
Tessera also has some exciting new products that should boost earnings. The company’s imaging and optics business sells a technology that allows for tiny yet better cameras for use in cell phones and computers, and it shaves $2 off the total cost of the camera. In return, Tessera collects a 35-cent royalty. A number of companies are already licensing the product, Nokia [NOK
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] among them, and Cramer sees the potential for virtually every other company climbing aboard as well. There’s also a laptop cooling system expected to hit the market in 2010 that Cramer thinks could be very well received.
Cramer did emphasize that Tessera is a speculation pick, so investors should keep that in mind. While it isn’t likely, that ITC ruling could be reversed, in turn killing the stock. Therefore the usual spec rules apply: Don’t buy in the after hours, don’t pay up, use limit orders, and don’t buy an entire position at once.
That doesn’t mean Cramer isn’t bullish on the stock – he is. The disappointing guidance management offered at the beginning of May sets the stage for an earnings beat next quarter. And best of all, Tessera’s royalty payments usually come a quarter after the chips are sold. That means the upside is still yet to come.
Cramer's charitable trust owns Qualcomm.
Call Cramer: 1-800-743-CBNC
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