The category of design software for use in the semiconductor and electronics industries doesn’t always get as much attention as consumer-oriented products. But there is renewed life in the sub-sector, and a few stocks could be near buy points, writes MoneyShow's Kate Stalter.
Companies specializing in design software have been stealthily amassing some solid chart action lately. On Monday, PDF Solutions (PDFS) gapped up and finished 6.9% higher, at $10.07. Volume was five times heavier than normal.
The company is scheduled to report its second quarter on Wednesday, after the close. Analysts expect income of 17 cents per share on revenue of $21.5 million. Those would mark significant year-over-year gains.
The company makes very specialized software, used in the process of semiconductor design and manufacturing.
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The stock has been consolidating below a five-year high of $10.64, reached in May. It’s now extended from its five-day moving average, making an entry potentially risky.
Also, keep in mind that this is a very small company, which adds to the potential risk. The company has a market cap of just $291 million, and trades only 75,000 shares a day on average.
Cadence Design Systems (CDNS) is another top-performing maker of software used by the chip industry. This stock has been trading in a very narrow range, often a precursor to further price gains.
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The week ended July 27, Cadence bolted 7.1% in above-average turnover, following second-quarter results. It closed less than 1% higher last week, a good sign that institutions were holding shares at that level, showing conviction about the company and the stock. Early in Tuesday’s session, it was edging higher.
|pagebreak|Cadence has been traveling northward above its five-day line, which it crossed on July 25. By that measure, the stock is somewhat extended, and could be ripe for a pullback below that short-term average, or to the 15-day exponential line. If it gets support in the short-term zone, it could offer a new buy point in the not-so-distant future.
In terms of market cap and shares traded, Cadence is less prone than PDF Solutions to sharp sell-offs. Cadence’s market value is $3.4 billion, and it moves about 3.5 million shares per day, excellent liquidity.
Mentor Graphics (MENT), which makes software used in the process of developing and testing electronics gear, has done several leadership stints over the past several years. This year, it’s been batted down when it tries to get anywhere near the $16 level.
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The company is due to report its second quarter on August 16, after the close. Wall Street expects profit of 17 cents per share on revenue of $240.15 million. Mentor has beaten earnings views in each of the past four quarters. It’s expected to earn $1.38 per share in 2013, a year-over-year gain of 22%.
On its chart, the stock is once again at the level it’s had trouble overcoming. If it breaks above the $15.75 level, and can sustain those prices, it could bode well for further gains.
Another company from a related business that’s been vaulting higher is Ansys (ANSS). On Thursday, the stock bolted 11% in more than double average volume after the company reported its second quarter. Ansys, which makes software used for product design and prototypes, also got some analyst upgrades, which lifted its price.
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Between 2003 and the market’s meltdown in 2008, Ansys had an outstanding run as a market leader. A monthly chart shows a solid history of price gains that resumed after March 2009, but a daily chart makes clear its propensity for erratic trade.
Ansys has a beta of 1.16, an indication of its volatility. For traders, it’s been a hard one to hold, despite being a mid-cap that trades around 729,000 shares a day on average. However, those who can stomach the volatility have been rewarded by a year-to-date gain of 18.63%.
Despite the big move last week, the stock is in a buy range right now, nestled below May’s all-time high of $69.34, and its August 2 intermediate high of $69.07. Obviously, resistance around the $70 level could be an issue, and buyers need to be very cognizant of that possible price ceiling. But if it cracks that level, it could lead to further technical strength.
At the time of publication, Kate Stalter did not own positions in any of the stocks mentioned in this column.
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