By Michael Brush, MarketWatch
CEO Gerald Colella cites demand for smaller chips used in 5G phones as key a source of growth ahead. “We’re very positive because smaller chips will continue to be put into phones, especially with 5G,” he said in the second-quarter conference call in late July.
Trend No. 2: Modernization of the military
The military has always driven tech development — and it’s no different now. This makes military spending on tech a key trend for Retzler. “New technologies are being deployed for greater precision and effectiveness to minimize casualties for our troops and civilians,” he says.
A good example is tech offered by KVH Industries /zigman2/quotes/209497123/composite KVHI +2.87% . The company’s inertial navigation division offers products that assure uninterrupted access to navigation systems like GPS for military vehicles.
Second-quarter sales were weak following eight quarters of double-digit growth. But the slowdown won’t last forever.
“We have a strong pipeline of opportunities and continue to get designed into new platforms,” cofounder and CEO Martin Kits Van Heyningen said in the second-quarter conference call.
Another favorite here is Intevac /zigman2/quotes/207606991/composite IVAC -4.13% , which makes digital night-vision imaging systems for the U.S. military, based on the company’s proprietary electron-bombarded active-pixel sensor technology.
Intevac’s night-vision systems are used in military aircraft, including Apache helicopters and F-35 fighter jets. The company is working on new technology for head-mounted and weapon-mounted night-vision apps. It also offers laser-illuminated infrared cameras for long-range night-time surveillance systems that can identify targets up to 12 miles away.
Intevac beat second-quarter revenue guidance in part because of strong sales of night-vision devices, and it expects sales here to double over the next five years based on new order and backlog trends.
Retzler also cites Lockheed Martin /zigman2/quotes/200691238/composite LMT +0.64% as a key player in military technology worth owning, though it is too big for his small-cap fund.
Trend No. 3: China’s investment in chip production
Another major trend Retzler likes to invest in is an outgrowth of the U.S-China trade war. President Donald Trump’s on-again, off-bans on sales by U.S. chip and component companies to Huawei and ZTE woke Chinese officials up to the reality that they do not have enough sophisticated semiconductor production capacity of their own.
To build that out they are going to have to buy chip equipment.
Retzler thinks Lam Research /zigman2/quotes/208077897/composite LRCX +0.97% will be a key beneficiary. Lam Research has an expertise in cutting-edge technologies like nanoscale chip production. China has been its biggest source of revenue growth. Sales to China accounted for 23% of revenue in the year ending June 30, up from 13% during the same time frame in 2016-1017.
And while this one is not exactly undiscovered, Retzler also thinks chip-equipment maker Applied Materials /zigman2/quotes/209393259/composite AMAT -0.28% will benefit from the build out of chip production in China, once China and the U.S. come to a trade-war truce.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush is a Manhattan-based financial writer who publishes the stock newsletter Brush Up on Stocks .