VECO

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What a tough call. VECO is at the top of its channel, and thereby triggers a short term sell in our book. On the other hand, the fundamentals make VECO look cheap, even at $43!

Here's the math...

If VECO grows at a conservative 20% a year, then we should expect its P/E to be approx 25, assuming a PEG ratio of about 1.2.

VECO's current EPS is 88 cents. This would make a fair price for VECO of .88(25) = $22.

Using its current EPS, VECO looks expensive. But if you look ahead a quarter or two, you'll see a whole different picture. In June, the 88 cents becomes $1.57. By December, it becomes $2.34.

Using the June estimate, a fair price for a share of VECO would be 1.57(25) = $39. So it's not overvalued at all. Looking out to December, we calculate a fair price of 2.34(25) = $59.

If VECO were to go from its current price of $43 to a price of $59 by December, that would be a 33% increase in just 9 months. We fully expect that VECO will reach $59, and perhaps even trade in the 80's by the end of the year.

So do you sell now because the technicals tell you to lighten up on the shares? Or do you hold because the fundamentals are telling you to buy more? We cannot answer this, as it's up to an individual's investing style (tolerance for risk). As for us, we're not heavily invested to begin with, so there's no impetus to run for the exits. If anything, we're looking to add to our LED positions. If we get a huge rally to impossible heights well above the top of the channel, we'll lighten up on the shares. In the meantime, though, we're going to let the fundamentals be our guide. If we were very heavily invested in VECO, we would lighten up here.

It should be noted that CREE and AIXG have higher P/E's than VECO, and a surge to the upside would therefore be more of a reason to sell those names. We're willing to hold a stock that is valued for the next quarter's EPS, but not one that is valued 9 to 12 months out. We continue to see value in MRVL, as well as strong technicals.