Hey all. Hope everyone is having a Wonderful Wednesday. The only position we had open this morning was Climarex Energy (XEC) for an Overnight Trade. We got involved at 70.60. The company missed estimates slightly, but they had great revenue and a great forecasting. It was a mixed bag. The stock opened a little south but moved up quickly. I sold out of the gate afraid of further losses at 70.10 for a 0.75% loss. Yesterday, we also had a Buy in Ultrashort Financials Proshares (SKF). We got involved at 19.26, looking for a 2-3% gain. We exited at the end of the day at 19.43 for a little under a 1% gain. SKF just never moved. We also Shorted Cognizant Tech for a solid 3% gain.
We are looking at a solid semiconductor today for our Overnight Trade in…
Overnight Trade: ON Semiconductor (ONNN)
Analysis: The semiconductors have been our best friend this Q2 earnings season. We just finished another semi play for 5% in Kulicke & Soffa (KLIC) the other day, making it our fifth winner out of six. The story is repetitive with them, but I will highlight some key points about ON Semiconductor. ON is set to report earnings that look to be a great improvement over one year ago and will most likely are an underestimation of what they will truly turn out to be. ON is a broadline semiconductor company that makes tons of chips used in a slew of industries, mostly automotive, consumer electronics, and medical equipment. ON is set to report earnings at an EPS of 0.20 vs. one year ago’s 0.05 EPS. That nice gain of 300% is already something to buy into, but a beat will help it even further.
If you have missed any of my prior stories about semiconductors, they all are basically saying the same thing. That the industries that semiconductors supply had a great quarter two, and demand was higher than analysts expected. One of the best industries was automotive, which is where ON does its main supply. Auto sales grew in April – June by more than 20% year-over-year. Not only did sales grow but so did production. Auto companies all reported booming profits for their second quarter, and they said they were increasing production to meet rising demand…more semiconductors. Semiconductors are at .png)
the front of rising demand, and they are showing that it was there in Q2. You can view this story or this one to see even more detail about some of the other industries seeing huge demand that ON fulfills.
If you don’t believe me, though, let’s just take a look at the broadline industry and some of ON’s competitors. The company’s two top competitors are Fairchild Semi (one of our winners I forgot, so 6/7) and STM Electronics. These two companies are in the same areas as ON, and they both saw 29% and 20% earnings beats. Since the beginning of July, 12/13 of the companies have reported earnings beats. The miss was from one of the smallest market cap companies in the semiconductor broad line industry. The success should continue into ON, who is a market cap leader.
Finally, ON is undervalued moving into earnings. The stock has dropped just under 10% in the past couple weeks, and it is sitting below its 50 day moving average. The stock has about 8% growth to its upper bollinger band. It is below 50 on its RSI, showing a very undervalued company. Fast stochastics have hit rock bottom. All the technicals are pointing in a good direction for ON.
We want to get in before the market gets it.
Entry: We are looking to get involved at 6.75 – 6.85.
Exit: We are looking to exit tomorrow morning after earnings this evening.
Stop Loss: None.
Good Investing,
David Ristau
