Four of TSFT's Favorites in 2013 for 2014
The Focused Stock Trader has had a great start to 2014 as well as great 2013. Please have a look at our outstanding track record. Given our performance in 2013, we wanted to share 4 of our recommendations from 2013 that will continue to perform in 2014.
- Plug Power (NASDAQ: PLUG: $2.97)
- Himax Technologies (NASDAQ: HIMX: $13.70)
- Cimatron (NASDAQ: CIMT: $8.81)
- GT Advanced Technologies (NASDAQ: GTAT: $10.14)
All these stock should have a good 2014 and provide strong returns for shareholders.
The Focused Stock Trader first recommended Plug Power in a Spotlight 2014 Fuel Cells report dated December 7th, 2013 at a price of $1.68. Since the initial recommendation, Plug has appreciated by 77%.
Plug is the dominant player in the fuel cell forklift market. According to Fuel Cells 2000, there are over 4,000 fuel cell forklifts in use in the U.S. today. Plug Power currently has an 85% market share. Plug's goal is to ship 3,000 units and generate $70 million in revenue in 2014.
Plug Power's GenDrive have a clear value proposition for clients including: increased productivity, lower operational costs, zero emissions, more commercial space, and easy transition from traditional lead acid batteries. This value proposition and Plug's dominant market share should lead to significant growth over the next few years. Plug Power has a significant potential within its current customer base. Plug Power has 4,500 forklifts deployed to date. This is far less than the combined 250,000 forklifts deployed by Plug Power's different customers. On December 4th, 2013, Plug Power hosted a conference call and webcast to provide investors with a business update. During this conference call, it stated they are very confident in reaching a conservative $70 million revenue figure in 2014. By the end of 2013, the company expected its backlog to cover 70% of its 2014 revenue guidance. Plug Power also stated a major deal between $30-40 million will be announced before the end of the year. Since the initial recommendation, Plug has surged to $2.97 at the close on January 29, 2014. This is still below our initial target prices of $4.00. On January 16, 2014, Plug provided a business update. Plug was able to raise $30 million by issuing 10,000,000 shares at $2.60 per share and 4,000,000 warrants sold for $0.40 per warrant leaving the company with $46 million in cash on January 16, 2004. Between December 4th, 2013 and January 16, 2014, Plug booked $32 million in orders. Plug also signed its first turnkey project with Krogers and partnered with FedEX to develop hydrogen fuel cell range extenders for electricity delivery trucks. Plug expects to book its 2014 revenue targets by the end of Q1 2014. The company also expects 2014 revenues of $70 million with a 25% gross margin and a 5% EBITDA margin. The company believes it can generate $400-500 million in the materials handling market in 4-5 years so there is a tremendous growth opportunity for the company. Conclusion With Plug Power's continued domination in the fork lift fuel cell market, continued order wins and has a huge market in front of it. The company share price below our target price and The Focused Stock Trader believes Plug will generate strong returns for shareholders in 2014.
We first recommended Himax Technologies on April 8, 2013 at $5.39 as we saw it as the biggest beneficiary of wearable computing and expected an agreement between Himax and Google. We reiterated our recommendation on September 9, 2013, September 18, 2013 and December 26, 2013. Since The Focused Stock Trader's initial recommendation Himax as appreciated by 154%.
Since our last recommendation, Himax has gone from strength to strength. The company continues to be the one of the leaders in the display drivers market with a 10.4% market share in display drivers. It also has an estimated 75% market share of the Liquid Crystal on Silicon (LCoS) market, which is a huge growth driver for the company as it is a key to Google Glass so much so Google made a 6.3% investment in Himax with an option for an additional 8.5%. Google Glass will continue to be in the news this year as it is expected to be released to consumers. These news events will be a key driver to Himax's share price. The company also continues see significant margin improvements with gross margin increasing by 6.8% over the past 2 years.
Conclusion With continued growth from display drivers, potential for Google Glass to hit markets this year and continued margin improvement, Himax is in for a stellar year and is one of The Focused Stock Traders top picks for 2014.
We continue to like Cimatron due to its 30 years experience providing integrated CAD/CAM software solutions and over 40,000 installations. The company has a ready market when it starts offering a 3D printing product. Cimatron brought on Terry Wohlers on its 3D advisory board. Terry Wohlers is a well known 3D market expert. CIMT is in prime position to take advantage of the 3D modeling market, which is projected to grow to $7.7 billion by 2018.
On January 21st, 2014, Cimatron announced its next software release planned for mid-2014, CimatronE version 12, will support the Additive Manufacturing File (AMF) format. AMF is the new standard for converting 3D models into digital files for 3D printing and additive manufacturing.
The Focused Stock Trader believes CIMT is undervalued. On November 7th, 2013, Autodesk (NASDAQ: ADSK) offered £20.75 per share for Delcam, a competitor of CIMT. In 2012, Delcam earned £0.58 per share in 2012 leading to a transaction multiple of 35.75x. Delcam's TTM PE based on the transaction was 33.15x. Using a PE of 33x on CIMT's TTM earnings per share of $0.41 leads to a fair value per share of $13.53 representing 53% upside from current prices.
Cimatron continues to execute, has a ready market for it 3D offering, and a strong management to execute in the estimated $3.7 billion 3D printing industry market.
GT Advanced Technologies
We first recommended GT Advanced Technologies on September 23, 2013 at $8.14. The share price has appreciated by 18.3% since the initial recommendation.
GT Advanced Technologies is a diversified technology company with innovative crystal growth equipment and solutions for the global solar, LED and electronics industries. Its products accelerate the adoption of advanced materials that improve performance and lower the cost of manufacturing.
It is transforming itself from a 100% solar company in 2010 to a diversified technology company with more of a focus on sapphire materials business and growth opportunities in the LED market. The solar business is now an insignificant part of the business.
On November 4, 2013, GTAT entered into a $578 million multi-year supply agreement to own and operate a furnace at an Apple facility in Arizona.
In October 2013, GT Advanced Technologies elaborated on its HVPE GaN system. The HVPE system will enable the production of low cost GaN templates on sapphire at scale. GT estimates that its HVPE system could lower precursor costs by greater than 80% while improving the throughput of expensive MOCVD tools and lowering CAPEX costs by up to 25%. The expected target date for the commercial availability of the HVPE system is the second half of 2014.
On January 16, 2014, the company announced it expected 2013 revenue in a range of $290 million to $320 million. Gross margins are expected to be in a range of 30% to 32%. In 2014, the company expects total revenue to be in the range of $600 million to $800 million, with overall gross margins in the range of 25% to 27% and positive earnings on a non-GAAP basis.
At its current market capitalization is trading at less than 2x the lower end of GTAT's sales. A very conservative multiple for a company growing at the pace GTAT is.
Conclusion GT Advanced Technologies has transformed its business from a pure solar company to a misunderstood sapphire and LED company. It has a clear value proposition and the lack of understanding of the company is leading to the undervaluation.
Additional disclosure: I was assisted by my associate Marc Melendez