Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week an Inner Circle member asked us about one of the many tech stocks that seek to dominate certain niche markets. STMicroelectronics makes computer chips for a range of markets, but has focused on special niches like in-car digital radio receivers. Pat looks at the technological edge the company has with some of its products and whether it can hold that edge by improving efficiency and maintaining a high level of research and development spending. Q: Hi Pat: Please let me know your view on STMicroelectronics NV. Thank you. A: STMicroelectronics NV (symbol STM on New York; www.st.com), makes computer chips for over 1,500 customers in a range of markets, including telecommunications, networking, automotive, industrial products and consumer devices. The company offers over 3,000 products in total. Computer chip markets are highly competitive, so STM focuses on gaining large shares of certain niches. For example, it is the world’s largest supplier of components for in-car digital radio receivers. The company has also developed the industry’s smallest, most efficient and best-performing chip-scale gyroscope for advanced motion sensing. This technology is used in Nike’s FuelBand device, a wrist band that records its users’ daily fitness activities. The component also goes into many new smartphones, including Apple’s iPhones.
Tech stocks: STM to exit money-losing joint venture with Swedish giant Ericsson
In the three months ended June 30, 2013, STM’s revenue fell 4.8%, to $2.05 billion from $2.15 billion a year earlier. Excluding one-time items, the company lost $0.06 a share in the latest quarter, compared to a loss of $0.05. The company holds cash of $1.6 billion, or $1.76 a share. STM is now bringing in a number of measures to improve its profits, including exiting its money-losing joint venture with L.M. Ericsson Telephone Co. (Nasdaq symbol ERIC), called ST-Ericsson; better managing its inventory; and making its manufacturing processes more efficient. The company will need to invest considerable amounts in research and development to keep developing leading-edge products in an intensely competitive industry. In the Inner Circle Q&A, Pat examines STM’s earnings outlook and balance sheet in light of the company’s need for higher research and development spending in its highly competitive field. He concludes with his clear buy-hold-sell advice on this stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members STMicroelectronics possesses cutting edge technology (like its tiny gyroscope) and the ability to penetrate certain niche markets. Are these the kind of assets you look for in tech stocks? Do you have examples of lesser-known tech stocks you found that profited from a unique niche or cutting-edge technology?
