The mobile Internet continues to drive the tech sector. Just look at these numbers:
Cramer’s Mobile Internet Index is up 13.5% since its Aug. 11 inception, compared to just 7.2% for the S&P 500. The more speculative names he’d recommended throughout the spring and summer – Broadcom, Ciena and others – have soared 30%.
At the same time, Tekelec , a company the Mad Money host likes, hasn’t moved at all. That’s not a bad thing, though. In fact, it’s precisely the reason that investors should buy it.
“I regard it as undiscovered,” Cramer said. “I think it has huge upside.”
This “forgotten tech spec,” as he called it, makes the technology that allows people to keep their numbers when they switch cell-phone carriers, called local number portability. Tekelec also produces equipment for transmitting text messages and managing voice traffic on wireless networks. If carriers are in need of more and better infrastructure to deal with data overload, and Cramer has said they do, then Tekelec is in the sweet spot, at least in terms of texting and talking.
For anyone who thinks video is the wave of the wireless future, check out this fun fact: Text messaging at AT&T , Verizon and T-Mobile climbed 12% from the previous quarter and jumped 80% year-over-year. No doubt video has its place, Cramer said, but Tekelec’s products are “vital to the growth of modern wireless networks that can support the mobile Internet.”
So why’s the company lagging its peers? Wall Street sneered at Tekelec’s latest quarter. That and the stock had already run to almost $20 from just about $11, and a lot of investors took profits. The share price has yet to recover.
No doubt there were some problems with the quarter. The biggest was the delay in launching Tekelec’s local number portability business in India. Instead of starting at the end of September, potential customers will have to wait until the year’s end. Cramer shrugged this off, though, saying that sales from number portability wouldn’t have hit the income statement in 2009 anyway. Revenue recognition rules prevent that. When the Indian division does launch, it will enjoy previously established relationships with five of the country’s top seven carriers. And Tekelec already controls more than a third of the number portability market there.
A number of other countries are implementing local number portability – China, Brazil and Russia among them – creating a growing and sizable market for Tekelec, and carriers are getting more competitive in their data offerings. Cramer thinks that Sprint’s $70 offering for unlimited Internet, texting, e-mail, TV, music and GPS navigation will spur competitors to follow, and that translates into more demand for Tekelec’s products.
Tekelec trades at $16, with over $4 of cash per share and no debt. Back out the cash, Cramer said, and that’s a mere 12 times earnings, which means the stock can’t go much lower without attracting buyers. The $1 a share in earnings the company is expected to generate in 2010 could reach as high as $1.35, if business improves. Give Tekelec a “reasonable multiple” based on that bigger figure, and you get $27 stock masquerading at $16, a potential 68% gain.
Of course, the usual rules apply: Use limit orders, buy in small increments, and do more homework on Tekelec over the weekend to decide for yourself if you want to buy the stock.
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