Jeff Farley's  Instablog

I have done some comparison work on VECO and CREE (two leading LED plays). While CREE is great, the results suggest VECO has a LOT more upside potential from here.

• CREE has a market cap of $4.6 billion. This is 5x the June 2011 revenue estimate of $910 million. Revenue is expected to grow 22% next year. The June 2011 EPS estimate is $1.43…so the stock is trading at 31x earnings.
• VECO has a market cap of $800 million. This is just 1.5x the revenue estimate for next year (compared to 5x revenues for CREE). Revenues are expected to grow 45% next year (far higher than the 22% for CREE). If VECO were to trade at 5x revenues like CREE…the stock would be $80 per share. VECO EPS are expected to be $1.25 next year, so the PE is 19.6. If VECO were to trade at the same PE as CREE…the stock would trade at $39 (+60% from here).
• Comparing the valuations of CREE and VECO gives me a potential upside target for VECO of $50 next year…maybe more if they continue to beat estimates by such a wide margin.

Disclosure: Long VECO.

STEC finally started a rebound on Tuesday after the same analyst who warned of competition last week - knocking the stock down $9, raised estimates and said to buy.
More importantly, I emailed back and forth with my technology expert and here are his latest comments on STEC. "I didn't see anything mentioning Pliant having any contracts, partnerships or even shipping drives yet. Pliant just looks like a startup company, there are hundreds of these because SSD is the next big thing. Their drives claim to offer better performance but they are publishing numbers for preproduction parts…STEC is publishing data for parts that actually exist, work and are being sold…STEC has preproduction parts that are much higher performance than what they are shipping but they don't need to advertise that, they are advertising real drives that are making money. There are going to be lots of companies claiming to be able to make SSD drives while STEC is already shipping product. Unless you see something that says "STEC recalls defective drives" or something saying that another company is shipping drives to a major server manufacturer at a lower cost, and that company shows a profit, STEC is the play."
As big funds search for growth stocks, I would not be surprised to see STEC rebound back to $40+ pretty fast (comimg weeks).
Disclosure: Long STEC

Stec (STEC - $29.15) - SSD's (solid state drives) are the next big advancement in computers. In STEC's earnings report last week...this is the highlight - Shipments of our ZeusIOPS Solid-State drives ("SSD") into the Enterprise-Storage market grew to $57.7 million for the second quarter of 2009, an increase of approximately 375% from $12.1 million for the second quarter of 2008, and an increase of approximately 125% from $25.7 million for the first quarter of 2009. I cannot remember seeing a company grow earnings this fast...just 90 days ago the EPS estimate was $.69 for 2010. The estimate is now $2.22. Stunning growth...and it seems like growth has a long way to go according to the CEO on the call.
Here are some of the notes from my best technology resource who is usually very skeptical of new stuff but loves this SSD technology...and gave me the conviction to buy STEC at $23 originally. "Something you will want to look for is who the other big server manufacturers like Dell are going to choose for server SSD's (solid state drives). HP partnered with STEC so Dell and others will need to use SSD's to be able to compete, I haven't seen SSD's as an option on Dell servers yet. There are data centers that have 100,000 drives in one building full of servers. If one data center replaced 100,000 normal drives with 40,000 higher capacity ssd's at $1000 each that’s $40 million in sales from one building. There are thousands of data centers all over the world. Then there are all the normal size corporations that have 10 servers with 10 drives per server so that’s $100,000 per company times hundreds of thousands of corps all over the world. $58 million in sales might only be 20 customers, there are thousands of companies like this waiting to replace old servers that needed to be replaced a year ago before budgets were cut."
Disclosure: Long STEC.

Stec (STEC - $23.70): Flash memory storage products maker Stec raised its second-quarter outlook 50% on strong sales of its ZeusIOPS solid-state drives (SSD). I emailed a very tech savvy friend of mine about this company and here is his reply. "The success of this company will be based on the success of the deal with HP. The drives have been out for a while but no big name to back them. Definitely has big potential, SSD drives are the next big advancement in computers, we have been using the same basic storage technology for 20 years. There are probably 20 manufacturers of SSD drives but these are the first that I have seen using the SAS or FC interface, they are specific to enterprise level server hardware. The other SSD companies produce drives with SATA interface that only works in consumer hardware, like laptops and PC's." I think STEC has upside to $30+. If looking for a stock replacement trade...I also like the August $25 calls.

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Wednesday night Green Mountain (GMCR) reported sales jumped 60% and earnings surged 118% to 50 cents per share (38% better than already raised estimates). In addition, they announced a massive distribution deal with Wal-Mart to sell the Keurig Elite B40 Single-Cup Brewer and a variety of K-Cups. With a stunning 50% of the stock short (I cannot think of any company in America I would be so scared to be short) we will most likely see GMCR trade well into the $60's on Thursday. Analysts will all be raising estimates and targets Thursday morning for sure. Here is how I get to $100 for GMCR:

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The new media hysteria is swine flu. Despite the fact that nobody in the U.S. is seriously ill so far..the media are already making this a much bigger story than it needs to be. This will be in the headlines for the next couple of weeks even though it...like all these other flu things around the world, never turns out to be the disaster the media makes many fear. The fact is; the regular annual flu has some stats that would make people freak out of the media blast the facts into our heads non-stop. Consider this from the Center for Disease Control website - Each flu season is unique, but it is estimated that, on average, approximately 5% to 20% of U.S. residents get the flu, and more than 200,000 persons are hospitalized for flu-related complications each year. About 36,000 Americans die on average per year from the complications of flu. I can almost guarantee you this swine flu will by a tiny fraction of what the real flu does each year. Tell your friends the real facts and spread the calm. The media storm will pass just as fast as it popped up this weekend.