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Advanced Micro Devices, Inc. (NYSE:AMD) is a leading designer and manufacturer of semiconductor chips, but you might not know that by looking at its $4 stock price. This company has annual revenues of roughly $5 billion and it is a very well-known and respected brand name, which doesn't seem to fit with the low share price. While this company has faced some challenges lately, naysayers and short sellers might turn out to be as wrong on this stock as they were on Hewlett Packard (NYSE:HPQ) when it was trading in the low teens about a year ago. This stock has an above average level of short interest and if there is anything that shorts and investors should come to realize, it is that AMD is a survivor and that the stock has historically made very big comebacks more than once in the past.

The shorts seem focused on all the typical potential downside risks, such as the fact that AMD faces significant competitive threats from well-capitalized and larger companies like Intel (NASDAQ:INTC). There is no doubt that this is true, but it's also true that AMD has faced significant competitive challenges in the past and it has still been able to post strong financial results at times. It seems that the key to success when investing in AMD depends on when you buy it. The stock has been cheap and in the single digits when the company has posted losses in the past, and in years when profits where solid and investors were bullish, the shares traded at what appears to be overvalued levels. For example, in the early 90's the stock was trading for just around a couple bucks, then it rose sharply in to the teens and then went even higher to about $45 per share during the 2000-2001 Internet and tech stock boom. AMD shares subsequently dropped below $5 in the tech stock crash, only to rise again to about $40 per share before the financial crisis of 2008. This shows it can make very strong upward moves from the single digits and that it has also repeatedly been able to trade at a very high valuation which can be a major downside risk for shorts to consider.

According to Shortsqueeze.com, about 127 million AMD shares are short. With an average trading volume of about 17 million shares per day, the short interest is equivalent to about 7.4 days worth of trading volume, or about 25% of the float. This is a significant amount of short interest and it could be enough to cause a short-covering rally. Some shorts appear to be seeing that AMD shares have either bottomed out or that it could be heading higher. In the prior period, there were about 131 million shares short which indicates about 4 million shares have been covered in recent weeks. This is not a huge move, but it could be the start of a trend, especially as the stock now appears poised for a potential breakout:

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As the chart above shows, AMD shares have been trending higher since October and it recently reached the $4 level. It now could be poised for a "breakout" as momentum investors and shorts may view the recent strength as a buy signal. AMD shares have a 50-day moving average of $3.54, and the 200-day moving average is $3.59. With the stock at $4 now, it is above both those levels now and it could be just a few days before the 50-day moving average crosses over the 200-day average in what is known as a bullish "golden cross" formation. The reason for this could ultimately be due to a number of positive fundamental factors such as:

1) While AMD has posted losses in recent quarters, better days could be coming. Analysts expect AMD to post a loss of 12 cents on revenue estimates of $5.25 billion in 2013. However, revenues are expected to jump by nearly 10%, to $5.85 billion in 2014, and AMD is expected to return to profitability with earnings of 13 cents per share in 2014.

2) AMD is still winning key contracts to supply chips to many leading tech companies. For example, in the past few months, AMD has announced deals to manufacture chips for the new Sony (NYSE:SNE) PlayStation 4 game console and the next-generation Xbox from Microsoft (NASDAQ:MSFT). A recent Bloomberg article states that companies like AMD are even benefiting from the sale of computing components for Bitcoins (BICN).

3) Due to an acquisition AMD made over a year ago, (of a company called "SeaMicro"), it has access to new technology that could allow it to compete in the server market which (with a share of about 96%) is currently dominated by Intel. This acquisition could add significant revenues in 2014 and one analyst's bullish view was detailed in a Barron's article which stated:

"This time could be different. SeaMicro's technology looks good; its management team, astute; and the market opportunities, promising. One newly converted bull, Dan Niles, who bought AMD this year after being negative on its prospects last year, thinks the shares could go to over $8. Niles, who works at AlphaOne Capital Partners, sees this happening if AMD's revenue grows to $7 billion by 2015, and if its stock multiple of enterprise value to trailing 12-month sales rises from 0.7 times now to 1.3 times, which would bring it closer to Intel's 2.2. He considers this very possible."

Downside risks appear to be fading as the company appears poised for profitability in 2014. A solid balance sheet is another positive as AMD has about $1 billion in cash (which is equivalent to around $1.47 per share), and roughly $2.25 billion in debt. With a couple of key contract wins and an acquisition that could really start to pay off now, AMD shares could once again be poised to produce significant gains and the $8 price target discussed above would give investors a potential double.

Here are some key points for Advanced Micro Devices, Inc.
Current share price: $4
The 52 week range is $2.26 to $4.65
Earnings estimates for 2013: a loss of 12 cents per share
Earnings estimates for 2014: a profit of 13 cents per share
Annual dividend: none

Ceragon Networks Ltd. (NASDAQ:CRNT) shares were trading for about $3.75 in late October, however, a secondary offering, growth concerns from some investors, and tax-loss selling, set the stage for the stock to finish the year at just about $3. In most cases, I would not look too kindly on a secondary offering or slow revenue growth. However, if you look past the headlines and dig deeper into the reasons behind them and the future prospects and goals this company has, it is easy to see why the currently depressed share price is a potentially significant buying opportunity. With the secondary behind it and now adding to the strength of the balance sheet, tax-loss selling over, a significant cost cutting plan implemented, and a "major new" line of product offerings poised to boost revenue growth, it appears to be the right time to get into this cheap tech stock.

Ceragon Networks bills itself:

"The world's #1 wireless backhaul specialist, Ceragon Networks ensures that mobile and fixed-line carriers as well as private network operators have the cost-effective transmission capacity to deliver the voice and premium data services on which we all rely."

As most investors realize, mobile data traffic is growing at incredibly fast rates. One recent estimate states that U.S. data traffic has surged by about 74%, from around 690 MB per month in 2012, to roughly 1.2GB in 2013. Global mobile data traffic also jumped by 71% from 140MB in 2012, to around 240 MB in 2013. A recent Seeking Alpha posting details the growth of mobile data around the world, and it lists a handful of companies that "derive a large percentage of their sales from mobile infrastructure and/or carrier Wi-Fi spending", and Ceragon Networks was one of the companies listed. The growth in mobile data is being fueled by a number of factors from surging smartphone sales, increased adoption of 3G and 4G services, the popularity of tablets, and the popularity of videos and movies being streamed on the Internet. These trends are likely to continue for many years, especially since global data usage is just a fraction of what an average U.S. user is consuming. That clears the path for a very compelling secular growth story for companies that can provide mobile data infrastructure and services.

For the third quarter of 2013, revenues were $92.1 million and the company lost $10.4 million or 28 cents per share. This was a revenue increase of 2%, from $90.1 million in the second quarter of 2013, which is not exciting, but there appear to be good reasons for the slower growth and for why it is probably just a period of temporary softness. Furthermore, now that the company has completed the development of its IP-20 platform of products, expenses are poised to decline and sales could rise significantly.

While sales have recently disappointed some investors, improved financial results are likely now that the company has launched its full "IP-20 Portfolio", which is a SDN-ready platform that allows short haul and long haul products to merge into a single hardware architecture and be managed by a common operating system. It's not unusual for tech companies to see sales decline just before a new product launches since customers often postpone purchases until the new products are available. This usually leads to a surge in sales after, which is what Ceragon Networks could be experiencing in the coming months. Financial results should also improve considerably because the company recently undertook a restructuring plan that is expected to achieve $25 million per year in annual savings. This is very significant since this company had around 37 million shares outstanding (as of Q3, 2013); because savings of $25 million per year would be equivalent to nearly 68 cents per share that could (completely or partially) make its way to the bottom line in the future. That could be a huge future upside catalyst for a stock that is trading for just about $3. Another point to consider is that about 18% of sales (in Q3 2013) are derived from Europe. As the economy continues to turnaround in many European countries, telecom infrastructure spending is poised to grow. The company made some bullish remarks regarding the launch of its new IP-20 product which could become increasingly popular as 4G services are expanded globally, it stated:

"The IP-20 platform sets a new industry benchmark for microwave based backhaul and fronthaul solutions," said Ira Palti, President and CEO of Ceragon Networks. "This game-changing technology reinforces our position as the number 1 wireless hauling specialist. With the IP-20 platform, our customers can smoothly transition to 4G/LTE/LTE-A, while preparing for future SDN architectures."

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As the chart above shows, this stock was trading for over $4 per share not long ago but it took a hit in late November and early December. However, it has already started to rebound and that trend higher could be poised to continue to at least $3.55 per share in the short-term which is the 200-day moving average. Longer-term, the upside is much greater and this is detailed in a recent and bullish outlook given by analysts at Needham. In a December 9, 2013 article, some significant upside catalysts that the market (for now) seems to be overlooking are noted, and it points out that analysts at Needham recently put a strong buy rating on the shares and set a $8 price target, it states:

"We believe the confluence of a low valuation, a major new product cycle, aggressive cost-cutting program and a firming end market will provide investors with strong returns on an investment in Ceragon shares," analyst Alex Henderson comments.

Henderson notes shares are down from $5.50 a year ago and $9.50 eighteen months ago. It is trading at a slight 0.3x P/S and 5.0x EV/E on our CY15 estimate, or like a company likely to lose money for an extended period and are unlikely to grow in the future. However, they see profitability for CRNT near term, orders accelerating and solid double digit growth within 18 months."

Some of the potential downside risks appear to have faded. For example, the secondary offering boosts its balance sheet strength and gives the company more flexibility to market its new product offerings. As of September 31, 2013, it had about $41 million in cash and around $61.5 million in debt. Its financial strength was further enhanced by proceeds of about $31.4 million, from the secondary offering in November which means balance sheet risks are not an issue. As with any tech company, obsolescence is a potential downside risk to consider, but with a new product line and its industry in a powerful secular growth phase, this does not appear to an issue.

While this company posted losses in 2013, analysts expect the company to become profitable in 2014, due to the new products, increased spending in this industry and because of the cost cutting measures. Consensus estimates are for a profit of 9 cents per share in 2014, and for 38 cents per share in 2015. Based on the forward-looking view of the market and on a price to earnings ratio of about 20, (for 2015 earnings), it's easy to see why Needham expects this stock to trade at about $8 in the next 12 months or so.

Here are some key points for Ceragon Networks, Ltd.
Current share price: $3.15
The 52 week range is $2.35 to $5.15
Earnings estimates for 2013: a loss of 51 cents per share
Earnings estimates for 2014: a profit of 9 cents per share
Annual dividend: none

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: These Top 2 Tech Stock Picks For 2014 Are Trading Below $5