Tech's move higher has been driven by two key themes, Cramer told viewers on Monday: China’s $40 billion wireless build-out and our insatiable demand for more bandwidth. He thinks that investors should buy ADC Telecommunications if they want a play on both.
ADC Telecom makes high-speed connectivity equipment, or just about everything needed to make broadband possible: cables, distribution panels, racks and frames for phone, Internet, cable and wireless networks, as well as copper and fiber connections. On top of this, the China Century Man acquisition has opened the door to China, allowing ADC to capitalize on that country’s seeming nonstop growth.
The problem for ADC has been its reliance on capital spending by carriers such as Verizon Communications and AT&T, which account for 20% and 19% of the company’s sales, respectively. Once that stopped, ADC suffered, which is why the stock dropped to a low of $2.47. But now that spending is ramping up again, ADCT has climbed back up to $7 and change.
The latest quarter illustrates the shift. ADC Telecom beat the Street’s earnings estimates by 4 cents a share. And revenues came in $9 million more than expected. This was a genuine beat, Cramer said, because it relied on actual business growth rather than financial hocus-pocus. Sales to Verizon grew 21% sequentially, while those to AT&T jumped 17%.
Then there’s China, where sales more than doubled – 101%. And ADC’s management doesn’t expect a slowdown in regional spending there until 2010. That’s just about when the US stimulus plan will kick in and $7.2 billion will to go a broadband build-out here. While it’s not an especially large amount of cash, Cramer said, ADC is one of just two companies that will most likely benefit.
ADC’s balance sheet looks great as well. There are $514 million in cash and equivalents and some auction-rate securities that have been written down to $26 million from their original par value of $170 million. Cramer thinks these offer potentially big upside now that the credit markets have started to thaw.
The bottom line? While ADCT has more than doubled off that $2 low, the stock is still fetching less than half of its 52-week high. That means there is still plenty of room to move, and Cramer’s expecting that to happen.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com