Bulletin
Investor Alert
Philip van Doorn

Deep Dive Archives | Email alerts

July 25, 2020, 1:45 p.m. EDT

These 2 stocks will profit from transformative tech trends

Look ahead to critically important technology as the traditional cloud isn’t fast enough to do what people will want

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Tower Semiconductor Ltd. (TSEM)
  • X
    AudioCodes Ltd. (AUDC)
  • X
    Alphabet Inc. Cl C (GOOG)

or Cancel Already have a watchlist? Log In

By Philip van Doorn, MarketWatch


MarketWatch photo illustration/iStockphoto

The information technology sector has soared this year as the stock market has recovered from the doldrums of March, aided by massive government and central-bank stimulus. But the long-term cloud technology trend that has fed so much success for the largest tech companies can no longer be considered new and transformative.

Gerry Frigon, the chief investment officer at Taylor Frigon Capital Management, pointed to distributed computing as a critically important area for investors to think about. Another trend is probably already on your mind: the boom in working from home and the communication systems that make it possible.

He has two stock picks that he believes will capitalize on these trends: Tower Semiconductor /zigman2/quotes/202726246/composite TSEM +0.95% and AudioCodes /zigman2/quotes/207912346/composite AUDC +3.58% .

Taylor Frigon Capital Management, based in San Luis Obispo, Calif., has about $280 million in assets under management. The firm’s Core Growth Strategy has performed very well against the broad market, as you can see below. The strategy focuses on finding innovative companies with excellent growth prospects that are “not yet well-recognized or fully valued.” Technology stocks made up 54% of the portfolio as of June 30, and five of the 10 largest holdings had market capitalizations of less than $5 billion.

Distributed computing, or the mobile edge cloud

The traditional cloud model of having computing done on a server run by Alphabet /zigman2/quotes/205453964/composite GOOG +1.17%   /zigman2/quotes/202490156/composite GOOGL +1.14% unit Google, Amazon.com /zigman2/quotes/210331248/composite AMZN +2.49%  or Microsoft /zigman2/quotes/207732364/composite MSFT +2.28% won’t work quickly enough for the new array of hands-free devices, the Internet of Things (IoT) and automated vehicles, Frigon said during an interview.

He also said that the development of 5G networks is really about “the movement of the cloud to the edge.”

”The paradigm of the past 15 years will start to break down,” he said, citing George Guilder, the author of the book “ Life after Google .”

With every automated vehicle becoming a mobile cloud, computing speed will be critical.

“The laws of physics limit what can be done at a distance because of latency problems — the speed of light,” Frigon said. Automated cars provide a perfect example of the need for distributed computing: “If a deer runs in front of your car, the processing has to be done instantaneously, or close to it. You don’t have time to go into the cloud to a Google data center.”

The same holds true for automated manufacturing.

Frigon named Tower Semiconductor as an example of a stock held within accounts that follows Taylor Frigon’s Core Growth Strategy. The Israeli-based company has a market capitalization of $2.4 billion and trades on the Nasdaq exchange.

/zigman2/quotes/202726246/composite TSEM 18.03, +0.17, +0.95%

Tower Semiconductor specializes in analog microchips, which can translate binary data (the ones and zeros processed by digital chips) into wave forms (including language) that people can understand. Frigon said the stock is a diversified way to play the mobile edge cloud trend.

Four of the five sell-side analysts covering Tower Semiconductor rate the shares a buy or the equivalent, with a consensus price target of $25.03, according to FactSet. That implies 14% upside potential over the next 12 months, based on the closing price of $22.01 on July 21. Analysts expect the company’s sales this year to increase only 3% from 2019, but for 2021, they expect sales to rise by 8%. The company earned a dollar a share in 2019. Analysts expect earnings per share to increase to $1.03 in 2020 and to shoot up to $1.49 in 2021.

/zigman2/quotes/202726246/composite
US : U.S.: Nasdaq
$ 18.03
+0.17 +0.95%
Volume: 165,778
Sept. 25, 2020 4:00p
P/E Ratio
24.65
Dividend Yield
N/A
Market Cap
$1.92 billion
Rev. per Employee
$231,171
loading...
/zigman2/quotes/207912346/composite
US : U.S.: Nasdaq
$ 31.53
+1.09 +3.58%
Volume: 167,256
Sept. 25, 2020 4:00p
P/E Ratio
131.76
Dividend Yield
0.86%
Market Cap
$1.03 billion
Rev. per Employee
$249,608
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,444.96
+16.67 +1.17%
Volume: 1.32M
Sept. 25, 2020 4:00p
P/E Ratio
32.23
Dividend Yield
N/A
Market Cap
$980.76 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,439.06
+16.20 +1.14%
Volume: 1.52M
Sept. 25, 2020 4:00p
P/E Ratio
32.10
Dividend Yield
N/A
Market Cap
$980.76 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,095.13
+75.34 +2.49%
Volume: 4.62M
Sept. 25, 2020 4:00p
P/E Ratio
118.97
Dividend Yield
N/A
Market Cap
$1550.32 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 207.82
+4.63 +2.28%
Volume: 29.44M
Sept. 25, 2020 4:00p
P/E Ratio
36.08
Dividend Yield
1.08%
Market Cap
$1572.71 billion
Rev. per Employee
$902,473
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.