In a churning market environment like the one we’ve seen over the last few months, sometimes the best trading opportunities are in stocks that have recently pulled back. As long as we do our homework and make sure that the depressed prices aren’t justified for the longer term, we can take advantage of the weakness and scoop up shares at a discounted price. That’s exactly why I like PMC-Sierra (PMCS) right now.
PMCS is a developer and marketer of networking and storage semiconductors. The stock had a strong run earlier this year as growth in the company’s storage segment led to favorable first-quarter earnings of $0.10 a share, which is 25% higher than the $0.08 a share last year. As a fabless chip company (meaning they outsource the manufacturing), earnings should have greater stability than those with manufacturing facilities, so these results bode well for future performance.
I recently recommended the stock to my Breakout Stocks Under $10 subscribers after I noticed that PMCS was forming a nice base after falling from the 52-week high close it hit in early April. That base meant that there was strong support at those levels, which told me that downside was relatively limited.
PMCS has traded well the last few days, especially with the semiconductor segment getting a nice boost thanks to rumors that Broadcom (BRCM) was about to be acquired – which were later confirmed. The shares wavered a bit in Thursday’s weaker market, but it’s now clear that PMCS is attempting to break out of its recent trading range.
If you look at the chart, you can see PMCS’ solid base as well as the attempted breakout move:
I also believe that the shares are benefitting nicely from the Board of Directors’ recent approval of a $75 million stock buyback program, which accounts for roughly 8% of the company’s total market capitalization.
I’ve been pleased with the way PMCS has traded lately and I think there is more to come after Friday’s break back above $9.00.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.
