Here you are folks. Some support!
May 20, 1999
TD Trader
Recommendations
CRUS and HTCH
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Cirrus Logic (CRUS)
HTCH: Long at 8 or better
Objective: 12
Time Frame: 6-12 months
Reevaluation level: Close below 6 3/4
Overview: Cirrus Logic is a bit of a turn around story. The company
launched a bid to focus on its core business and redefine overall
strategy in September 1998. Management will concentrate on developing
the company's leadership in the market for embedded applications used in
data storage devices, DVDs, telecommunications systems and audio
systems. In addition, the company has been phasing out non-core/low
profit margin businesses such as wafer fabrication. Because of the
disposals, year on year revenue growth was flat for the fiscal year
ended March 1999 and the company earned 16 cents per share.
Now that the restructuring is complete, the company appears ready to
capitalize on new products and innovations. Recently, the company
received the EDN (a trade magazine for the hard drive industry)
"Innovation of the Year" award for digital ICs. Also, the company has
developed an audio decoder chip for use in DVDs. Both the DVD and hard
disk storage markets are growing at rapidly.
Technical Analysis: In January 1999, the stock was trading as high as
13, but tumbled in the ensuing months to a low of 6. The low at 6 is
higher than the previous reaction low in September 1998. There was a
sharp bounce off of this low and the stock has been building a base
between 7 and 8 for the last month. Over the last few weeks, the stock
has dipped to 7, but manages to hold above and rally back. In the last
two days, we have seen strength building after a hammer formed on
Monday.
On the daily chart, the Trading Momentum Oscillator (TMO) has formed a
large bullish divergence and is just below zero. The Volume Force
Oscillator (VFO) has also been moving up since February and has just
moved into positive territory. We are also seeing strength in the
Relative Strength Comparative (RSC) as the stock has begun to out
perform the S&P 500. On the weekly chart, both the TMO and VFO have
broken above their 10-day exponential moving averages to confirm the
strength in the stock.
Prognosis: CRUS does not earn a lot of money, but they are leaders in
their field. We are moving ahead of the analyst community on this one as 5 of the seven who cover the company have a hold recommendation. Until there are signs that the earnings are turning around, the analyst community will not pick up on the company. However, that will likely be well after the stock has moved. This is a longer term investment (6-12 months) and we are buying in between a support and resistance zone. When and if the stock breaks 8, it should move up to 10 without much problem. Should the stock close below 7, then a test of support at 6 is likely.
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