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Bull Of The Day: Ultra Clean (UCTT)

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The Bull of the Day is an article that is supposed to highlight why a stock is a Zacks Rank #1 (Strong Buy) or maybe a Zacks Rank #2 (Buy). It isn’t really about the stock that went up the most or that is even expected to go up the most.  Sometimes stocks that have strong earnings and excellent valuations trade lower… and that is what has happened in two of my recent articles.

Technically, this Bull of the Day article is going to focus on Ultra Clean Corp (UCTT - Free Report) but I will also talk about Kemet (KEM - Free Report) as well.  Let’s review both of those recent Bull of the Day articles.


The previous Bull of the Day for this article came out on May 12 ( and it more or less reviewed why it was the Bull of the Day 3 times already this year.

The key point then, as it is now, was valuation.  The stock traded at just about 13x forward earnings which is far below the market multiple and almost half of the industry average multiple.  Clearly, the market is discounting the earnings growth for UCTT and that could be due to the fact that a majority of its sales come from just a handful of customers.

The more recent report should have been a wake-up call to Wall Street, because UCTT is getting more customers with more orders.  That will lead to more sales and of course, more earnings.

Recent Report

The most recent earnings report for UCTT came on July 27, when the company topped the Wall Street estimate by 11 cents in earning $0.62 per share. Revenue growth of 75% over the prior year was well ahead of the $213M estimate coming in at $228M.

The guidance was the heart of the report, and things look great for next quarter.  The company guided EPS to a range of $0.62 to $0.68 when the consensus estimate was looking for just $0.39 – and that is for the next quarter.  This means that estimates are likely to move higher by 50% for next quarter. 

Revenue guidance of between $235M-$245M is also well ahead of the $193M consensus estimate.

Stock Trades Lower

I have been asked at least two dozen times (and one dozen of those is from my wonderful mother) why this stock is trading lower after posting such great results.  The simple answer is that investors are selling this stock and that could have something to do with the elevated expectations on the stock even after a huge run.

Short Interest is only about 3.3% of the float, so it is not like the shorts are really influencing this stock (yet they have increased their position by about 8% since the last reading).

In the end, the weak hands that sell this stock now will likely be the same ones that buy the stock again after it has already moved another leg higher.  That just seems to be the way of the markets, where a lot of investors sell low and then buy high.

Following the report, Needham put a $30 price target on UCTT.


Another stock I have recently touted is Kemet Corp (KEM - Free Report) which was a recent Bull of the Day you can find here: (  KEM also recently reported solid earnings, yet the stock also traded down.  Let’s take a look at the report.

Recent Earnings Report

KEM reported earnings of $0.33 which was $0.13 ahead of the consensus estimate on August 2.  The company posted revenue growth of 48% with sales of $274M vs the $282M estimate but if the TOKIN acquisition occurred on April 1, then sales would have been $291M.

The company guided revenues higher to a range of $295M-$305M with the consensus at $285M.

The stock saw a huge swing yesterday morning, touching a new 52 week high of $18.20 in the early moments of trading but then turned around the fell as low as $15.25.  $3 swings in price are not a common event for stocks that are less than $20.

Sellers Reasoning

I know that revenue number looks bad and the company offered the excuse of “if the acquisition” closed… but it didn’t.  Crossing T’s and dotting I’s isn’t something that just the Ohio State University Marching Band should be doing, management needs to make sure deals close on a timely basis.

Looking ahead, I see good things for KEM and believe that it will maintain the Zacks Rank #1 (Strong Buy) along with the excellent style scores of “A” for Value and Growth.

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