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Over the past week and a half, I have been contemplating drastic re-adjustments in not only my personal account, but also three others that I manage for friends and associates. Somehow they have gotten word that I am pretty "adequate” at forward-looking stock analysis. But as the saying goes, “you are only as good as your last trade”, so there is pressure to not disappoint.

In the process of reshuffling these positions, I hold true to form and follow precisely the same trading game plan that I have outlined in several commentaries provided over the past year. In my approach, I have taken into account the current market reaction to the events of Japan. By and large, the indices have held up as best as one can realistically expect. Despite this current pullback, and even though concerns remain over radiation poisoning, for the market to be down a relatively small 6 to 12% is nothing short of remarkable.

Las Friday (3/18), it was evident that consumer discretionary stocks as well as techs took a severe beating. In fact, equities that rely on discretionary spending have been down sharply for most of the year. But that was to be expected in light of rising gas prices as well as mounting concerns over events in the far east. Investors are also looking more favorably towards financials; more specifically banks, many of which announced the offering of dividends.

So what should you be doing right now?

Apple’s recently launched iPad 2 created a wave of excitement for tablet fans everywhere. This bodes well for chip makers as well as companies that focus on apps for not only tablets but also smartphones. This to me is a safe area. I expect the revolution that is the tablet and smartphone industry to continue to do exceptionally well as the year progresses. This will have a direct impact on the companies that make applications for these devices. I believe sales of these devices will exceed that of last year by a significant percentage and consumers will rely upon apps to run needed functions, whether basic or advanced. In 3+ years most of the 2 billion phones sold annually will be app-enabled smartphones.

To capitalize on this, I have been actively buying many stocks which I think are well positioned to benefit from this projection. One of these stocks is Atmel Corporation (ATML). Atmel competes in a wide variety of different markets in the chip industry. The company's products include microcontrollers, programmable logic devices, and a wide range of proprietary system-on-chips and nonvolatile memory chips. The company manufactured about 93% of its own chips in 2007. It sells its products into many different end markets, including communications, consumer electronics, computing, as well as automotive.

Granted, as been the case for most tech companies, it has had its own fundamental challenges at the onset of the recession. But not all companies succeed in self-improvement to the extent that Atmel has. This modest semiconductor company is a good example of the rewards that can accrue when patient shareholders and committed management intersect.

From a fundamental standpoint, Atmel has outpaced its peers over the past several quarters. However, production during Q4 placed a bold exclamation point on that sentiment. Revenue rose 3% sequentially and 33% from last year, which is not only above what analysts had projected, but rather compelling in comparison to rivals like Cypress (CY), LSI Logic (LSI) and Microchip Technology (MCHP). Better still, that growth rate is somewhat inaccurate on an as-reported basis; subtracting the Smart Card business (which the company divested) shows sequential growth of 10% and year-on-year growth of 44%.

Undeniably, things are going well for this company. Their microcontroller business is healthy, and though I have pointed out the benefit of its association with Apple (AAPL) and the tablet phenomenon, Atmel is also gaining share in the non-Apple gadget market as well with its line of maXTouch controllers which basically run the touch-screen interfaces on several devices from Nokia (NOK), Motorola (MMI), as well as HTC. Atmel also continues to do well with its profitability. Its gross margin was more than 10 full points higher than in the year-ago period; a testament to the benefits of not only boosting revenue, but restructuring operations.

I’ve also bought a significant position in Cisco (CSCO) which by the way just recently announced that they plan to offer a dividend. They are sitting on billions in cash and will look to leverage their assets to capitalize on growth. As of Friday’s closing price of $17.14, one has to look back almost 13 years ago to see the last time this technology bellwether was this cheap. If you consider Cisco’s current cash position, its ostensible debt coupled with sales metrics that are significantly higher than it was 13 years ago, it makes little sense to me how the market can justify such a low valuation for this company. Say what you want about the company’s supposed lack of direction, but purely from a technical and fundamental perspective, the stock is egregiously oversold. It has a book value per share of $8.24. It posts cash per share value of $7.28, a forward P/E ratio of 9.6 with a relative strength index of 14. The metrics indicate arguably one of the best bargains in the market at the moment.

The two other stocks that I have bought are Corning (GLW), and Nuance (NUAN) for many of the reasons mentioned previously. Corning provides the backbone of a critical mass technology, the LCD flat screens used in TVs, monitors, notebooks and other mobile devices as previously mentioned. The company continues to receive strong business from its offering of key ingredients that go into making LCD televisions and other industrial product offerings. Its business is cyclical but is in the recovery stages and therefore should see further upside potential. The stock is reasonably valued at under 10 times forward earnings, though profits are projected to be flat for 2011.

The company recently reported solid earnings. Sales were reported at $1.77 billion; a 10% sequential increase and up 15% year over year. Earnings per share were $0.66, excluding special items, earnings were $0.46,* a 10% sequential decline, but 5% improvement year over year. Display technologies’ wholly owned business volume increased almost 20% sequentially. These are truly remarkable figures considering the sector in which it operates produces products for discretionary spending. In this economy and the fact that it is still in the recovering stages, one has to expect sales figures to continue to rise. Click on chart to enlarge:


From a technical point of view, the stock has been building a base for over a year before finally clearing resistance in late January. It has followed through rallying into the $23 level. I will admit, it is quite extended at this point and normally it is not a good idea to chase stocks higher, but I could not help adding a modest position as the chart not only looks very healthy, but the company is well positioned for growth for all of the reasons mentioned above. Also consider that the $20 level would likely act as a significant support level on any sign of weakness.

Nuance (NUAN) is interesting here because they deliver speech-based technologies to the enterprise, mobile, health-care, and personal desktop industries. Speech-based is the key here because I sense that precise technology will be instrumental and spark the next generation of mobile apps with speech recognition. Their technology is applied to a variety of systems including automated call centers, mobile phones, global positioning systems, personal desktops, as well as health-care documentation. Last month they reported Q1 earnings that posted a net loss on $9K or close to breakeven per share. This is compared to a net loss of $4.3 million or $.02 per share a year ago.

Chief Executive Officer Paul Ricci said, "Demand for our mobile and consumer offerings, along with continued progress in our healthcare and imaging business lines, enabled our revenue growth in the first quarter."

They reported revenues of $303.8 million, which is an increase of 15.5 percent from $263.0 million in the same quarter of last year. Including sales lost to accounting treatment in conjunction with acquisitions, revenues were higher by 11.5 percent at $317.3 million, compared to $284.6 million a year ago. They are truly one to keep an eye on as the economy continues its recovery.

One thing that I am always careful with when re-shuffling my portfolio is “over exposure”. To maximize possible premiums and as a point of hedging, I have looked to short a couple of stocks that I believe may be adversely impacted for all of the reasons stated above. One such stock is Lender Processing Services (LPS). In the current environment, they have gained significantly from the misfortunes of homeowners. They are on a pretty hot streak right now, but I don’t expect it to last. Although LPS' lock on the mortgage processing market has built a moat around its business, revenue will most likely get knocked back once the spike in homeowner defaults passes. One has to also consider that increasing customer consolidation could weaken its moat.

Additionally, in the span of the previous 52 weeks, the stock has registered a low of $25.50 with a high of $41.75. Though they recently beat analyst estimates on their recent earnings report, they have disappointed with their guidance of 81 to 84 cents per share for the first quarter. Analysts were estimating 90 cents per share. Technical indicators for the stock are also bearish. So If you are looking for a good hedged, one should not look farther than LPS.

Source: Reshuffling My Portfolio for Long and Short Gains