Cramer’s Tech Specs: Teradyne
Cramer continued his endorsement of technology stocks on Wednesday by recommending another small, speculative name as a way to trade the sector’s big move higher. He said this semiconductor firm could hold more upside potential than the any other in the group.
Tech has enjoyed quite the run, as the inventory glut that so hurt the group, specifically chipmakers, gave way to empty warehouses. The depression-turned-recession led many companies to let their product supplies ride, only to find a sudden rise in demand for those products. That sent managers scurrying to replace their dwindling stockpiles, thereby boosting business for the semi firms that supplied essential components.
Cramer has been recommending these chip companies for just this reason. While he is bullish on tech bellwethers like Google , Apple , Amazon and Research in Motion , the Mad Money host thinks there are even greater returns to be had through tech specs. Companies like Teradyne , he said, might have the most room to move.
Teradyne, which makes chip-testing equipment, is a play on the absolute bottom in semiconductors. If chip manufacturers aren’t healthy, Teradyne is downright sick. But with this industry’s resurgence the company is in position to bounce back and bounce back hard. Signs of a turn have already popped up, as Teradyne beat the Street’s earnings estimates and offered better-than-expected guidance when the company reported its first-quarter results in late April.
The semiconductor-testing business has been volatile for some time, leaving just a few survivors. The positive side here is that Teradyne now controls 40% of the market, and, as a result, some pricing power as clients demand more and more chips.
The company has also made some smart moves to improve its chance of success. Cuts totaling close to $190 million makes Teradyne leaner and meaner, Cramer said, and choice acquisitions – into the Flash memory, high-speed memory, analog and disk-drive testing markets – have greatly expanded its footprint. This adds even more chance for upside to the stock.
Remember as always, that this is a speculation play. Cramer’s rules for using limit orders, buying in increments and waiting for a pullback all apply. Don’t buy on the spike that usually follows Cramer’s stock recommendations. Luckily for investors, though, tech has paused for a moment, offering a possible entry point. And once the growth-hungry mutual funds spot Teradyne’s potential, this stock should run.
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