4 Tech Stocks with Major Catalysts Ahead

David Sterman's picture

Friday, May 18, 2012 - 10:00am

by David Sterman

Here at StreetAuthority, we often talk about "catalyst investing." Simply put, it's not enough to find stocks that are inexpensive -- hundreds of stocks can bubble up on various value screens. This often leads to the question "Why now?" After all, will this stock still be inexpensive six months from now?

Instead, it's wise to focus on stocks with near-term drivers. This can be a new product launch or an entry into a new market. Other times, it may be the imminent issuance of a first-time dividend or a key acquisition. Whatever the catalyst, these stocks have upcoming events, mandates or milestones that can get shares finally moving up.

Let me give an example. If you follow my $100,000 Real-Money Portfolio (which is available free for a limited time), then you know I'm a fan of Calgon Carbon (NYSE: CCC), which I added to my portfolio roughly two months ago. This stock has been stuck in a trading range, but this should change in coming quarters. New mandates that require ships to treat their ballast water are expected to go into effect before the end of the year. This should set the stage for rising sales in 2013 and beyond. Analysts appear to under-appreciate this catalyst, anticipating sales to grow less than 10% in 2013 (to about $650 million). This low bar spells opportunity.

Here are three other stocks with upcoming catalysts...

1. AMD (NYSE: AMD)
This chip maker has been steadily growing stronger under new management as new high-performance low-cost chips are helping retain market share against mighty Intel (Nasdaq: INTC).  Just a few days ago, AMD launched a new microprocessor called Trinity, which is targeted to the burgeoning niche of "ultra-books." These are sleek, lightweight high-end laptops that represent the first solid chance to push back against the tablet computer juggernaut.

These ultra-books will often carry Intel's chip, but their $1,000-plus price may scare off some buyers. AMD's low-priced Trinity chip could be a compelling alternative for ultra-book makers, as they'd be able to charge as low as $600 for the ultra-books. Acer, Asus, Lenovo, Samsung, Sony (NYSE: SNE), Toshiba and Hewlett Packard (NYSE: HPQ) have all announced plans to use Trinity. Expect to hear a lot about this important product launch when AMD releases second-quarter results this summer.

2. Jabil Circuit (NYSE: JBL)
This contract manufacturer serves as the factory to many other tech companies. I first wrote about Jabil in late 2010, when an impressive growth strategy was laid out for investors. Shares moved up sharply, but have since been hit by concerns that Cisco Systems (Nasdaq: CSCO) and Research in Motion (Nasdaq: RIMM) -- both key customers -- will send less business to Jabil. Those concerns are now priced in, and it's time to revisit this stock, especially now that a positive catalyst is in place.


 
The catalyst: the next iPhone, which is slated for release in September. In each of the four periods when the previous iPhones were launched, Jabil's stock typically made a nice quick upward move. (Jabil doesn't make the actual phone, but a number of subcomponents that go into it.)

Here's what happened in each of the past two years. The iPhone 4 was launched in June 2011, and two months later, this stock was up 15% (compared with a 5% gain for the S&P 500 in the same period). The iPhone 4S was launched in October 2011, which fueled a 36% gain in this stock during the next five months -- more than twice the gain seen in the S&P 500.

With an eye toward that trading pattern, Merrill Lynch has recently upgraded its rating on Jabil to "buy" with a $28 price target (roughly 40% above current levels).

3. Take Two Interactive (Nasdaq: TTWO)
Shares of this video game maker have slumped badly in recent weeks as an expected catalyst disappeared. Investors were disappointed to learn that "Bioshock Infinite," the next title in the popular "Bioshock" series of games, would see its release delayed from late 2012 to early 2013 so the company could tweak a few story lines.

Well, 2013 also happens to be the year when Take Two's highly-popular "Grand Theft Auto" game will see a new release. These two games alone could help Take Two deliver a knockout year. Although Take Two likely lost roughly $0.65 a share in the fiscal year ended March (results haven't been released yet), analysts anticipate the current year to be far different. Thanks to these two games, sales are expected to more than double in fiscal (March) 2013 to about $1.8 billion. Earnings per share may approach $3 according to some forecasts. The recent move back below $13 sets the stage for a very low-multiple stock, with clear catalysts in place for upside.

Risks to Consider: As Take Two shows, catalysts can be hit by delays. Indeed, I'm quite bullish on Calgon Carbon's catalyst-induced prospects, but am also prepared for speed bumps along the way to full ballast water treatment adoption.

Action to Take --> Of all of these, AMD appears to be the most timely investment opportunity, followed by Jabil Circuit, Calgon Carbon and Take Two. All four of these stocks are trading on near-term results, and investors are seemingly ignoring the good news to come. This is a great chance to snatch up shares before the crowd catches on.

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David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of CSCO, INTC in one or more of its “real money” portfolios.