The 'stock of the week' award!
investing.lycos.com
8:32 pm ET, Sunday, December 20, 1998
Market Analysis Stocks
Stock of the Week: Vitesse Semiconductor
This week's Stock of the Week is Vitesse Semiconductor (VTSS), a leading maker of digital gallium arsenide (GaAs) integrated circuits. (S&P) [More]
This week's Stock of the Week is Vitesse Semiconductor (VTSS), a leading maker of digital gallium arsenide (GaAs) integrated circuits. The company's products incorporate its proprietary high integration gallium arsenide technology to produce high-performance integrated circuits primarily for telecommunications (52% of revenues), data communications (22%) and automated test equipment systems providers (22%). Vitesse's customers include Alcatel ADS (ALA), Cisco Systems (CSCO), Credence Systems (CMOS), Ericsson(LM)Tel'B'ADS (ERICY), Lucent Technologies (LU), Schlumberger Ltd (SLB), Seagate Technology (SEG), Tellabs, Inc (TLAB) and Teradyne Inc (TER).
Vitesse believes high integration GaAs technology provides significant advantages over silicon-based integrated circuit technologies in speed, power dissipation and complexity requirements. As the requirements of telecommunications, data communications and automated test equipment systems providers have increased, the limitations of silicon-based integrated circuits have become more pronounced. GaAs has higher electron mobility which allows Vitesse's integrated circuits to operate at much higher speeds than silicon devices or to operate at the same speeds with reduced power consumption.
Vitesse's recent results have been impressive on particularly strong demand from the communications and automatic test equipment markets, as well as increased manufacturing yields. Consensus earnings per share estimates are $0.83 for FY 99 (Sep.) and $1.18 for FY 00. Based on the FY 00 estimate, the stock is trading at a fairly hefty price/earnings ratio of 39, but the company is projected to grow earnings over the next five years at an estimated 42% annually. The stock is currently trading above its 50 and 150 day moving averages. Vitesse's recent breakout to an all-time high on very heavy volume looks especially promising. Its relative strength is now in the top 3%, while the group relative strength is also high. Sell stop: $35.
To see last week's Stock of the Week, click here.
About Stock of the Week
Stocks of the Week are suggested investment opportunities for potentially large capital gains over a 3 to 12 month horizon. S&P picks these stocks from the universe not covered in the S&P STARS system. This means that no S&P analyst currently follows these issues with a buy or sell recommendation.
Therefore, you must complete your fundamental analysis and follow future company developments on your own. S&P picks stocks from a combination of fundamental and technical criteria. Fundamentally, we focus on superior historical sales and earnings growth. We then look for superior five-year forward growth consensus forecasts and a moderate P/E valuation. High and increasing margins is also a criteria as are companies with high market shares.
S&P's technical screens select stocks based on recognition of favorable chart patterns and high relative strength. We look for stocks breaking out to all-time highs on heavy volume after a price consolidation.
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