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Getting CREE'md
(NASDAQ: CREE): Post Close Earnings Outlook |
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I haven't written anything about
CREE
in sometime, but today gives us a good opportunity to look at the stock
and come up with a plan. CREE, at its core, is a specialty semiconductor
manufacturer. At best, they are middle tier, and certainly not best of
breed.
However, over the past five years,
they have taken their rather specialized chips and chosen to focus their
energies on the next generation of lighting- the LED (Light Emitting
Diodes). This next generation light bulb is powered by a specialized
chip.
The incandescent light bulb has reigned
for 125 years, but is on its way out. The bulb you see here lasts 15 times
as long as your incandescent bulbs, and uses 85 to 90% less energy. Countries
around the world are mandating the elimination of incandescent bulbs over
the next 10 years- Brazil, Venezuela, Canada, and Australia are all mandating
the phase out of the incandescent dinosaur.
CFLs are sometimes mentioned
as a possible replacement- these are the small fluorescent bulbs you can
screw in a light socket. They are commonly available, but the light is
terrible, there are some polluting components, and they are nearly as efficient
as the LED bulb.
I first wrote about CREE in
June of '07 at about $25- forecasting it would go to $50
as LED bulbs were adopted. Since then, the stock has spiked into
the mid to high $30 range a couple of times, but has succumbed in the current
bear market to a lower valuation.
Today, after the market closes, CREE
will announce June quarterly earnings. The last couple of earnings reports
have disappointed Wall Street, and the stock was clobbered post event.
Here's an interesting chart:
As you can see from the chart- CREE
ran up into the $31 range from about $26 just before last
quarter's earnings release. The earnings were a big disappointment, and
the stock gapped down big and sold off all the way to about $23.
My SSL for this stock is published
at $23. I hold 3,000 shares with an average cost of about $26.50.
Back in June the stock traded down rather abruptly below $20. Had
I not been on vacation in a wilderness area, I probably would have sold
the stock, gotten out, and waited for a more favorable climate to go back
in and a better earnings record.
I didn't, so now I'm stuck. CREE
is a highly controversial idea, and a favorite of short sellers on a valuation
metric. Most investors like the company- just not at this price. It is
estimated there could be as high as a 30 million share short interest in
the stock.
This time, the stock has not traded
up so abruptly into the earnings release. The analysts have lowered the
bar- the forecast is for $.09 in EPS. I believe there is a reasonable
chance the stock could trade up after tonight's earnings. I was hoping
the shorts would knock it down into the $15 range pre earnings, at which
case I would have loaded up for a trade.
Instead, price wise we are in no
man's land. If I am lucky enough to get a good number and a surging stock,
I might go ahead and sell the position and hope to get out with a minimal
loss.
I still believe the stock will end
up at $50 someday. However, like most major transformations, the LED
lighting revolution is taking longer to develop than the analysts anticipated.
The company is not making its numbers regularly.
If it doesn't trade up, any moves
will be a game time decisions based on the earnings release. In the event
there is a gap in the stock, now would be a great time to watch the video
on "Trading Gaps" found at the home page on the "Trading Strategies" tab.
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