After a stellar end to 2016 for chip stocks it’s easy to believe the rally is a bit long in the tooth. While these stocks have historically higher beta than the rest of the market, they’re not exactly at the cornerstone of the post-Election Trump rally. In fact, lots of these companies could be threatened under the new administration’s policies, especially if anything resembling a trade war with China develops.
However, new technologies and changes in internet infrastructure have fueled the fire for chip stocks. Specifically, I’m talking about the shift to 4k, 100Gb switches, and anything having to do with increasing bandwidth. Today’s Bull of the Day is a company that offers a broad portfolio of compound semiconductor-based products for the broadband, fiber optic, satellite and terrestrial solar power markets.
EMCORE (EMKR) is a Zacks Rank #1 (Strong Buy) with a Momentum Style Score of B in an industry that ranks in the Top 8% of our Zacks Industry Rank. A big reason for the favorable rank is the recent bullish moves analysts have made with regards to their earnings estimates for the current quarter, next quarter and the current year. Four analysts have increased their estimates for the current quarter, while three have done so for the current year. The moves have pushed our current quarter Zacks Consensus Estimate from 5 cents to 10 cents and have increased our current year number from 23 cents to 34 cents.
It was these estimates along with a fantastic quarterly report that set EMKR off on huge spike higher. Shares went from below $6.75 to nearly $8.75 in the first session following their last report where earnings came in at 8 cents versus expectations calling for 4 cents. The stock rallied in the days following the report, eventually hitting a fresh 52-week high of $9.50 before beginning to retreat. Now the stock has pulled back as the Commodity Channel Index (CCI) has dipped below oversold territory under -100 at -152. I’m looking for the CCI to reverse a little bit and push up through the zero line before adding to an existing long position in one of the portfolios I run here at Zacks.
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