Stocks rose last week at a peppy pace once investors discovered that the 820 level of the S&P 500 appeared to provide a firm foundation. In a bouncy span of six days, the Dow Jones Industrials and S&P 500 rose 5%, the S&P Smallcap 600 rose 6%, the S&P Midcap 400 rose 6% and the Nasdaq 100 rose 8%.
The past week didn’t actually feel as strong because this positive result was in doubt right up until the last 11 hours of trade.
The broad market was flat for the week through Thursday at 10 a.m., but then a forceful cadre of brave investors decided to bet that the monthly jobs report that might not be as horrific as the swelling consensus was beginning to suspect.
It’s important to note the differentiation among market cap, exchange and sector groups because it showed a growing willingness to take risk.
When you can see large-cap Nasdaq stocks leading the charge, it’s a sign that fretful investors are willing to shed their shyness.
If this keeps up, it’s the start of a hopeful bet by institutional fund managers that businesses that have been beaten down in the past year have a shot at outpacing low expectations. They may not be right, but that’s the bet.
Chipping In
Now a quick word about Altera Corp. (ALTR), one of our best performing Nasdaq stocks in the past two months.
Altera is the second largest maker of programmable logic devices in the world. When you consider that the two largest companies in the semiconductor industry share 86% of the total market — long-time rival Xilinx accounts for a leading 51% of the market to Altera’s 35% — second place doesn’t look too bad.
What’s more, market share in this industry counts for quite a bit, since competing companies design their products to be incompatible with those of competitors. Any substantial increase in market share bodes well for revenue.
Last week, Altera reported fourth-quarter earnings and 2008 revenue; it beat by a penny. In the same announcement, they estimated Q1 ’09 revenue will fall significantly because of the economic downturn, possibly to the tune of 20%.
Beyond that, just about everything coming out the company looks good. Execs forecast a strong 2009 overall, an increase in market share, and an enthusiastic reception of its latest line of products.
ALTR has gained ground on leader Xilinx for several years now, designing superior products and boasting a management that steered the company through the 2000-2002 crisis as well.
Operating margins have been impressive, averaging over 25% since 2003. Analysts predict a small drop in that figure over the next several years, but still a healthy number.
Its strength in programmable logic devices, or PLDs, bode well. Because of an increase in technological development, PLDs can now be built much more cheaply than they have in the past, when they were typically expensive to mass produce.
The PLD market has grown substantially in recent years — a 9% clip each year between 2002 and 2007. Industry analysts don’t expend the trend to slow any time soon.
On top of that, Altera’s field-programmable gate array (FPGA) product line was well-received in 2008 with editor’s choice awards at many trade publications. The product was just shipped out in December, so if it is as well received by the public as it was with the critics, look for Altera to quickly turn around those revenue numbers for 2009.
Consumers aren’t too concerned how the worldwide economic downturn is affecting a company’s sales; they’re concerned if they make innovative products that fulfill their ever-growing appetite for faster and better.
Forbes recently honored Altera as the best managed company in the semiconductor industry. That’s a considerable asset in the industry, which is highly cyclical. History gives investors good reason to be confident, so I have recommended that investors consider buying on dips.
For more ideas like this, check out my Trader’s Advantage advisory service.
This article was written by Jon Markman, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
