I don't have any definitive information to explain the recent jump. The fact that it is not a sector-wide move suggests stock-specific causes, rather than capacity adds in Taiwan or Korea. I'd say that the most likely cause is merger rumors taking hold again. There will very likely be a merger at some point. It's anyone's guess whether it is imminent or not. With the stock trading at a large discount to other stocks in the sector, many of them could finance a stock deal at a modest premium and still make the deal accretive very soon, so I'd call merger rumors the most likely source of the recent strength. (Incidentally, if there is M&A activity, I'd estimate the chances at about 50% that it would be SFAM doing the acquiring. While the stock performance suggests that they would be the target--still a good possibility--SFAM may find some of the struggling CMP companies' valuations too attractive to overlook. They might be able to gain technology faster through acquisition faster than they could develop it internally. The assets of Obsidian, Cybeq, Berkeley Control, or bankrupt Aplex might be attractive to them.)
Another possible cause could be accumulation by an institution or two, perhaps anticipating a good upcoming analysts' conference. There were a few big blocks traded on Thursday, the first of which accounted for most of the day's gains. On Friday, there was steady buying all day without any significant low-volume dips. To me, that smacks of institutional accumulation.
Finally, it could just be a technical correction within an oversold stock. In such a situation, the momentum can fuel itself over the short term without a fundamentals-based justification. Technically speaking, the stock looks very strong, and I expect that the first real test of this rally will occur at the resistance around $20, barring some change in the publicly-disclosed fundamentals.
Profitable investing,
Mr. Sam |
