The selling in Cree and Rubicon has been unjustified, Cramer said Thursday. He called the stocks “profoundly misunderstood,” saying investors now had the chance to buy them “at what I consider to be absurdly low prices.”
Cree was pulled down, despite reporting a strong quarter on Aug. 10, for its exposure to light-emitting- diode, or LEDs, specifically those for computer screens and cell phones. The Street was concerned with waning demand in this segment, so investors sold the stock. Interestingly, these products make up only 20% of the company’s revenues.
What investors should be focused on, though, Cramer said, is Cree’s general LED business, which makes up more than half of revenues. These LEDs have to do with the new energy-efficient light bulbs that will be adopted in place of the old incandescent bulbs. And the latter will be phased out between 2012 and 2014 because they use too much electricity. That means $50 billion worth of bulbs will need to be replaced, creating a tremendous market opportunity for Cree.
Again, the sell-off in this stock has given Mad Money viewers an opportunity. Right now Cree trades at just 17 times 2011 earnings despite a 25% long-term growth rate. That’s cheap.
What about Rubicon ? This stock—down $10 form its July 27 high, and another 5% on Thursday—was a victim of Cree’s misfortune. But Rubicon is the only pure play public company that supplies sapphire wafers, the raw material on which 80% of LED chips are made, to the LED industry. And these wafers are in short supply thanks to high demand for LEDs, putting Rubicon in a profitable position regardless of the kinds of chips that are made.
Some profit-taking is to blame for RBCN’s decline, too, as the stock doubled between February and July. But Cramer thinks the sellers made a mistake. With many traditional semiconductor companies entering the LED space, the raw material for these products will be needed even more, and that’s good for Rubicon.
RBCN, like Cree, is cheap. It trades at just 15 times next year’s earnings, despite a 29% long-term growth rate.
“Growth rate is twice the multiple?” Cramer said. This stock is a “screaming buy.”
Call Cramer: 1-800-743-CNBC
Questions for Cramer? email@example.com
Questions, comments, suggestions for the Mad Money website? firstname.lastname@example.org