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Trade Mellanox (MLNX), Not Apple (AAPL) for Cloud Computing Profits

MLNX could go up another 15-20% over the next month on continued buying momentum


In the tech world, the big names get a lot of attention from the financial press, and rightly so. The drama of the Apple (NASDAQ:AAPL) decline over the past year, as well as the spike above $800 in Google (NASDAQ:GOOG) tend to take center stage among tech investors. But lesser-known names might just be even better trading vehicles for those looking to book quick profits in tech stocks breaking through technical resistance and/or surging on positive news.

Enter semiconductor maker Mellanox Technologies (NASDAQ:MLNX).

The company produces interconnected products used in computing, storage, and communication applications used in so-called “cloud computing.” Mellanox’s products facilitate data transmission between servers, storage systems and communications infrastructure equipment, a task in big demand for cloud applications.

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The chart here of the MLNX over the past 52 weeks shows the big decline in the stock that started in September.

That decline was sparked due to fears that Intel (NASDAQ:INTC) would be entering the space, and that the chip-giant could possibly dominate the cloud computing supply chain. The steep drop in the shares, more than 54% over the past six months, has caused this stock to become way too oversold, in my opinion.

Apparently, I’m not the only one who feels this way about MLNX.

Before the opening bell on Thursday, JMP Securities upgraded the stock from “market perform” to “outperform.” That upgrade sent the shares soaring Thursday, with MLNX jumping nearly 8% during the session to close at $54.53.

Fundamentally speaking, Mellanox is a strong company that beat EPS estimates during its most-recent quarter. The company also beat on the top line with strong revenue growth. I think the combination of fundamental soundness, along with the fact that the shares are way too overbought here, means an opportunity for traders to get in on a stock that’s about to make a big rebound.

I suspect MLNX could go up another 15-20% over the next month on continued buying momentum. Of course, a stock like MLNX is a momentum play, and that means it’s subject to a sharp selloff. So, if you get into the stock here, make sure you have a tight stop-loss order in around 7-8% below your buy price.

At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.

Article printed from InvestorPlace Media,

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