NSM: Let's Keep Those Overnight Trades Coming

Jun. 9.10 | About: National Semiconductor (NSM)

Click to enlargeGood morning! I hope most of you got my alert with positions updates earlier this morning. I had an emergency last night that kept me up very late. We are out of both of our open positions that we had in The Men’s Wearhouse Inc. (MW) and Vail Resorts Inc. (NYSE:MTN). We exited MW at 19.44 this morning for a 4.8% gain. The stock nearly hit my 6% high end range exit this morning at 19.67, missing by a penny. If you are still holding, we are exiting on the range of 19.29 - 19.67. Vail came out with a nice earnings beat, hitting an EPS of 1.98 vs. the expected 1.85. Yet, the company did not forecast as well as some were expecting. The stock opened at 38.35 and quickly dropped. If you followed my guidance and set an order to exit at open, you should have made money. I exited at 38.20 from an entry at 37.35 for a gain of 2.25%.

Today’s Overnight Trade has the potential to be a two-day trade because it does not report until Thursday evening, but I think it might get a nice boost tomorrow and is still at a great price right now. The chart on the above left is one of the beginning reasons why I like this company…

Overnight Trade of the Day: National Semiconductor Corp. (NSM)

Analysis: The semiconductor industry has had a wild ride over the past couple years. The leader of the pack Intel Corp. (NASDAQ:INTC) fell 50% from the summer of 2008 to the end of the year. Then, it rose 100% through April. Now, the market has started its turn back down, INTC has again dropped just under 20%. Semiconductors were one of the industries that has really started to see some great recovery as tech business starts at the conductor level, and it is a great sign that industry is starting to pick back up again. One company that is reporingt earnings on Thursday evening that should continue the trend in the industry is National Semiconductor Corp. (NSM).

NSM is projected to report a profit of 0.28 EPS for its Q4 of 2009 (on a strange reporting schedule). The company, one year ago, reported a loss per share of -0.28. They were estimated to report a loss of -0.48. The company is projected to turn a profit though this year in the final quarter, and that was what first attracted me to this play. The company has had four straight quarters of over 22% surprise beats on EPS that have helped propel the stock up 33% from July ‘09 - April ‘10. Yet, the stock has re-declined on a market movement downwards since mid-April, dropping nearly 20%. The company, despite strong fundamentals reported last quarter and expectations for continued growth and a 200% increase on profits from one year ago, the stock has gotten little movement.

That makes me think this could be a stellar two-day play. We get in today and get some gains throughout tomorrow and possibly hold through earnings for even more. The semiconductor sector has been doing very well, as I said. Since the beginning of May, in the semiconductor - broadline sector, seven companies have reported earnings all with beats. Close in size companies like ON Semiconductor and Altmel reported beats of 12% and 300%, respectively. Chip sales continue to increase, as well, in April chip sales were up 2.2% from March and 50.4% from one year prior. The chip sales saw a 4.6% increase in February to March and a 58% increase on the year prior. The reporting season that NSM has is from March - May, so these numbers lend themselves to why the company is expected to continue to rise and make such a jump from one year ago.

In the March - May area, NSM also received three upgrades from Morgan Keegan, Bernstein, and the S&P. MK came right at the beginning of June, but MK analyst Harsh Kumar expected that the companies telecom and industrial business was really thriving in the market recovery and expected the company to hit the high end of their revenue estimates around $390 million. The estimates that have an EPS of 0.28 have revenue at $384 million. The S&P raised its outlook for the company back at the end of March after three quarters of revenue growth that is expected to continue into this quarter. The company has significant free cash flow. One worry does come from the fact that NSM is partnered with Nokia as one of its main business operations. Yet, while NOK has declined, the company since the beginning of the year has attempted to completely reinvent their entire company with lots of new phones - smartphones…meaning all new semis.

The growth in the entire sector is a sign that as companies come out of the recession they are looking to come up to speed on technology. The company has recently moved into the highly lucrative and growing solar sector, and they have business in so many other sectors than just telecom. The revenue estimate of $375 - $390 million was put out back at the end of March as well before the company saw how exceptional the March and April months really were.

Last quarter was a great one for this company and it has had no movement moving into this earnings report, which is why I think this one will get a big boost throughout today and tomorrow. If we still do not have 4-6% by then, I have no qualms holding this one into earnings, as I think the company will once again shine. They are right at that lower bollinger band, highly oversold and undervalued. Overall, the company has great fundamentals and weak technicals. That is a winning combination…

Good luck!

Entry: We are looking to get involved 13.35 - 13.50.

Exit: We are looking for a gain of 4% - 6% through tomorrow. If that is not reached, then we will hold for an exit at market open on Friday unless otherwise changed.

Stop Loss: 4% on bottom.