NVLS

[David Randolph]

NVLS should be on the 3 Stocks on Fire Portfolio for some time, but I'll use yesterday's small correction to add it to the Portfolio.

Here's the analysis I made on November 15th:

«1. Introduction

The Nasdaq 100 Index made a very important technical breakout yesterday. Now we're almost at 5 year highs on the Nasdaq, and this tells me the technology sector is set to outperform the general market over the coming weeks/months.

NVLS is a technology stock breaking out to new highs with volume above average. I want to know more about it.

2. Profile

Novellus Systems, Inc. (NVLS) engages in the development, manufacture, sale, and servicing of semiconductor equipment used in the fabrication of integrated circuits ... (complete profile here)

3. Technical Analysis
3.1. All History Chart



I've seen worse debacles from the 99/2000 tech bubble. In comparison, NVLS held pretty well with just about a 60% decline . I like this long term base on the all history chart.

3.2. Medium Term Chart



The recent breakout is technically significant on a long term basis.

3.3. Short Term Chart



I can see that the breakout is being made with volume above average. Candlesticks are also very bullish, with a two white soldiers pattern. There's absolutely no doubt that TA says «buy». I wonder about the fundamentals.

4. Fundamental Analysis
4.1. Number of Shares Outstanding



NVLS didn't dilute shareholder value beyond 2001, and this is part of the reason why the share price held up so well. In 05 and 06 the company was actually aggressively buying back shares. This is a positive development, because it reduces market cap (since market cap is stock price*number of shares outstanding) and increases EPS (EPS = Net Income/# of shares outstanding).

Current market cap is 123,603,945*$31.54 = $3.9 B.

4.2. Liquidity



NVLS has a very, very strong balance sheet, with a current ratio of 3.73 and $1 B in working capital. Cash and short term investments of $663 M.

4.3. Revenues



Revenues have been growing again since 2002 and 06 is going to be a record year for NVLS, with $1.64 B revenue estimate. The sales multiple is $3.9 B/ $1.64 B = 2.38. The Semiconductor Equipment & Materials industry has an average sales multiple of 1.61. But, the average revenue growth rate for the industry is just 3.6%, whereas for NVLS is 31%.

4.4. Profits



Wow, analysts, on average, are predicting $1.75 EPS for full year 2006. This matches the company's all time high EPS in 2000, when the stock was trading at $70 (doesn't mean much). The company already made $1.16 in the nine months until September.

The current earnings multiple is something like $31.54/$1.75 = 18. The industry average is 25.3.

5. General Overview

NVLS is not extremely cheap, but it's trading at a below average earnings multiple, and given its recent growth rate, buyback shares plan and strong balance sheet I don't see why. I think it should trade at above average multiples. Say it trades at 25 times EPS, the share price would climb to $43.75.

I'm bullish on the Nasdaq and bullish on NVLS going forward.

6. Trading plan

Buy NVLS today at the open, 6.66% of capital as always.

Here's the updated chart:

[David Randolph]

The holiday tomorrow probably explains the low volume on today's session in most of the stocks that I follow.

NVLS was no exception. Bought at $32.22 around the open, nice pop near the end of the session.

Nothing to add to the initial analysis made today, except maybe that, of course, I'll continue holding the stock through Friday's session.

[Terliso]

Nice pick applause
NVLS could climb above 40 bucks easily
Nothing goes straight up but patience will pay off

I'd like to study Fundamental analysis too, David could you recommend me some good books for Fundamental Analysis? Thanks

Regards,
Alister

[David Randolph]

I'd like to study Fundamental analysis too, David could you recommend me some good books for Fundamental Analysis? Thanks

That's great Terliso

I recommend these 3 books on Fundamental Analysis:

Mastering Fundamental Analysis
Buffettology
One Up On Wall Street

Then, if you want to make your work easier and faster, I recommend you subscribe to Alphatrade's "Fundamentals" service.

If and when you have done this, let me know, there's more to it 

[David Randolph]

NVLS isn't a fantastic pick, but I sure think it will outperform the general market. I have nothing new to say at this point, I'll keep on holding NVLS at the 3 Stocks on Fire Portfolio.

[David Randolph]

Investors sold everything yesterday, especially those stocks where they had good profits. NVLS was one of those and it fell 3.87%, to close at $31.55, right at a short term support.

I think the sell off may continue for a bit today, but then the stock will recover, because the trend is up and it is undervalued.

On December 4 NVLS will give us its mid quarter update: Novellus Announces Availability and Timing of Mid-Quarter Update Conference Call Webcast for Fourth Quarter 2006

I'll continue holding NVLS whatever happens today.

[David Randolph]

I think the sell off may continue for a bit today, but then the stock will recover, because the trend is up and it is undervalued.

It happened. I was glad to see NVLS close above the $31.56 support level. The mid quarter update will be on Monday before the open. I want to hold NVLS through that conference call.

[David Randolph]

I guess there won't be much action around NVLS before the mid quarter update Monday before the open. I expect that update to bring more eyes to see how NVLS is undervalued and bid it up.

Holding and waiting on NVLS.

[jorgegr]

Today Stifel Nicolaus downgraded this stock from hold to sell and is falling 2%
in the pre-market.
Any ideas??  or just hold like EGHT which was also downgraded today.

[David Randolph]

Today Stifel Nicolaus downgraded this stock from hold to sell and is falling 2%
in the pre-market.
Any ideas??  or just hold like EGHT which was also downgraded today.

Thanks for your question jorgegr, NVLS was downgraded 8 times since September 5, as you can see here:



Over this period the stock price rose 12.6%. Who are you going to believe, the analysts or the market?

As a rule, I believe the market and my own analysis, of course. My analysis says NVLS will go over $40 over the next 6 months, so I'll continue holding it.

[David Randolph]

Onde day after another downgrade, NVLS rose 3.6% with 12.1 million shares changing hands. At one point the stock was up 6.6%, but the $33.25 short term resistance level brought in some sellers.

Anyway, bull trends have no resistance and ultimately NVLS will break $33.25 on the upside, as it moves towards $40, despite all the analysts downgrades.

[David Randolph]

NVLS held Friday's gains and $33.25 are in short sight. If we get a close above $33.25 on volume above average the short technical target would be $33.25 - $30.82 = $2.43 + $33.25 = $35.68 (when there's a breakout of a rectangular formation the technical target is given by adding the difference between the formation's high and low to the formation's high).

Anyway, that breakout didn't occur yet, so, as Melf Elf would say, $35.68 isn't in play yet.

I'll keep on holding NVLS.

[David Randolph]

NVLS is providing a useful lesson here. Please read this previous update.

Eight downgrades and yet the stock moved higher. Analysts were saying "sell", but the market kept saying "buy". The market is always right and won again.

This stock has everything in its favour. The chart shows an awesome bullish breakout today. Fundamentals say it is worth at least $43. And the crowd talk is bearish. Ignore the talk, respect the fundamentals and the market to make money.

[422fwhp]

Ignoring another downgrade this am.  Down in premarket

[magu]

By Aude Lagorce
Last Update: 6:02 AM ET Dec 6, 2006


LONDON (MarketWatch) -- Goldman Sachs cut semiconductor maker Novellus Systems (NLVS : NLVS0.00, 0.00, 0.0%) to sell from neutral, saying it believes fundamentals are poised to be much worse than the market is currently anticipating, driven by NAND weakness that is already becoming apparent. The broker told clients it believes the recent M&A speculation around the stock is nothing short of irresponsible as it thinks it's "extremely unlikely that Novellus will be acquired at these valutions given the lack of synergies with potential byers."