Monday Winners: Century Aluminum, United Micro and Perfect World

David Sterman's picture

Monday, June 21, 2010 - 11:51am

by David Sterman

Among the biggest winners in Monday's early trading are Century Aluminum (Nasdaq: CENX), United Micro (NYSE: UMC) and Perfect World (Nasdaq: PWRD).

Top Percentage Gainers -- Monday, June 21, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Century Aluminum
(Nasdaq: CENX)
$11.18 +11.4% $18.77 $4.70
Perfect World
(Nasdaq: PWRD)
$26.00 +8.5% $50.49 $21.49
United Micro (NYSE: UMC) $3.30 +6.1% $4.24 $2.31

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 1:50AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Aluminum Stocks love a Stronger Yuan

A wide range of aluminum and steel stocks are rallying this morning, led by a +11% gain for Century Aluminum (Nasdaq: CENX). Many of these firms, such as Alcoa (NYSE: AA), POSCO (NYSE: PKX) or U.S. Steel (NYSE: X) have struggled to raise prices while Chinese rivals flooded the market with lower cost products. If China indeed is set to finally strengthen its currency, other Asian countries may follow suit. And that would enable these aluminum and steel producers to raise prices or take market share.

Action to Take --> A stronger Yuan helps, but a balanced and stable growing global economy is the real panacea for this group, as that would allow for improved pricing and profits. It’s too soon to know if the currency moves will aid the results of these firms, so it’s not clear if there is stronger near-term upside for these rallying names.


A Foundry bags New Business

Shares of United Micro (NYSE: UMC) are up more than +6% this morning after the Taiwan-based company announced a joint venture to co-develop a low-power chip with Japan’s Elpida. By pooling these resources, these firms can trim R&D costs while staying on the cutting edge. And UMC, the world’s second-largest maker of chips, also benefits by securing production rights to the new chip they plan to co-develop. Chip foundries can be hugely profitable when kept busy.

Just a week ago, UMC announced that second-quarter sales would be strong, and added that its foundries should be quite busy for the rest of the year as well. That should enable the company to post a sharp +300% gain in profits this year.

Action to Take --> Analysts expect profits to rise another +20% in 2011 to around $0.25 a share. Yet those forecasts now look too conservative in light of recent announcements. (Investors should note that UMC has earned more than $0.20 a share only once in any fiscal year during the past decade). The company should post record profits next year, but at around 10 to 11 times likely upward-revised forecasts, shares may have limited potential appreciation from here - at least until we know more about the company’s chip development plans with Elpida. This is a name that is suitable for further research, but know that chip foundries rarely garner high price-to-earnings ratio (P/E) multiples.


Perfect World: A Possible Yuan Play

Chinese video gaming stocks have taken it on the chin this year, but investors may start to warm up to the sector once again. A stronger Yuan would lead to higher results in terms of dollars, so look for analysts to boost their profit forecasts if and when China actually starts to strengthen its currency.

Shares of Perfect World (Nasdaq: PWRD) are up +8.5% on that sentiment. Right now, analysts think Perfect World can earn close to $4 a share in 2011. But a stronger Yuan may lift that view closer to $4.25 - all other things being equal. Shares trade at just six times that figure.

Action to Take --> Analysts will likely hold off boosting profit forecasts until it becomes clear that China will let its currency rise. Once that process is underway, expect a solid boost in estimates for all China-based consumers that sell into the Chinese domestic market. Perfect World is just one of many stocks that hold the dual support of low P/Es and rising profits.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.