For Immediate Release
Chicago, IL – October 2, 2019 – Zacks Equity Research Shares of KLA Corporation (KLAC - Free Report) as the Bull of the Day, GoPro (GPRO - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Canadian Solar (CSIQ - Free Report) , SolarEdge Technologies (SEDG - Free Report) and JinkoSolar Holding Company Ltd. (JKS - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Today’s Bull of the Day is far from a household name. Though KLA Corporation is responsible for many of the processes and products that make our modern electronic lives possible, few people outside the technology and investment fields tend to be aware of the company.
KLAC’s contributions to integrated circuits, wafers and flat-panel displays are probably at work right now in your computer, monitor, phone and television, yet all of those products bear the name of a different company.
Formed by the merger of KLA Instruments and Tencor Instruments in 1997, KLAC has relentlessly pursued advances in its own technology as well as acquiring 27 additional companies. They now boast a global footprint in manufacturing, R&D and support services that spans the US, Europe, the Middle East and Asia.
Despite the lack of consumer-level recognition, KLAC’s focus on innovation makes it a trusted source within the industry, as well as providing a diverse revenue stream that largely insulates the company from the boom and bust cycles that plague many high-tech suppliers.
KLAC’s core product line performs critical functions within the chip and electronics manufacturing process and its Service business provides technical support, knowledge management and an extensive worldwide network of parts and supplies. Customers rarely make a single purchase, but rather continue to rely on continued support throughout the product lifecycle. Roughly 75% of Service revenue is contract based, further smoothing out revenue trends.
The market for talent in Silicon Valley is fiercely competitive, but KLAC has made attracting and retaining key employees part of it’s culture. Nearly 40% of its workforce holds an advanced degree, yet employee turnover of less than 5%/year is about half of the industry average.
A disciplined Capital Allocation model stokes the fires of growth while also ensuring the return of value to shareholders. KLAC lists its primary capitol allocation priorities as R&D, Working Capital and Strategic Acquisitions. Secondary allocation priorities are dividends, share repurchases and debt service.
Over the past 10 years, KLAC has increased its annual shareholder dividend from $0.60/share to $2.84/share – a yield of just under 2% at the current share price.
The total return to shareholders over that same period has been a whopping 674% - more than double the return of the S&P 500.
KLAC’s long-term revenue model seeks to maintain and improve that outstanding shareholder returns with growth in Services, gains in market share and an increase in industry-wide sales.
Despite delivering steady revenue and sales growth that’s the envy of the tech sector, KLAC currently trades at a lower P/E Ratio of just 16.7X – lower than the S&P 500 and much lower than most of the industry.
Tech investments often conjure up images of big risk and potentially big returns. Despite their focus on cutting edge products and services, KLAC’s financial discipline means investors don’t have to endure the risk to get the rewards. Management’s focus on shareholder value has rewarded faithful investors with market-beating returns and below-average volatility.
Six recent upwards earnings revisions earn KLAC a Zacks Rank #1 (Strong Buy) and 16 consecutive beats of the Zacks Consensus Earnings Estimates make it comfortable to sleep at night, safe in the knowledge that the management and staff of one of the best - and yet least-known - tech companies is working for you.
Bear of the Day:
Founded in 2002 by a charismatic adventurer named Nick Woodman, GoPro briefly became one of the market’s hottest IPOs, quadrupling in price in the four months after its June 2014 offering.
GoPro’s action cameras fit perfectly with the desires of millennials (and many older customers) who wanted to document the fun they were having and share it with their friends and social media followers.
Though GoPro’s flagship “Hero” product was a fairly non-traditional digital camera with limited device playback capability, a suite of accessories that allowed it to be mounted virtually anywhere – including on bicycles, surfboards, dogs(!) and pretty much anything else that moves – made it a favorite of the thrill-seeking crowd.
The ability to add a wide variety of special effects allowed users to easily create their own professional looking adventure films. Early on, Woodman envisioned GoPro as not simply a camera manufacturer, but also the creator and curator of digital entertainment. The promise of that idea was obvious – the company would reap initial revenues from hardware sales and then recurring sales as customers who already owned the device continued to pay for apps, software and services.
Companies like Apple have become the giants of modern industry on the same premise -a “sticky” ecosystem in which selling the initial hardware pieces also keeps customers coming back over and over for higher-margin services.
Unfortunately, the target audience is a fickle crowd and most of that potential never materialized. Stagnant revenues and an ill-timed investment in photographic drone technology (that performed poorly and resulted in mass-refunds and roughly $80 million in losses before being discontinued altogether) took GoPro shares from an all-time high of $87 in 2016 to recent lows below $5.
Part of the problem is a lack of barriers to entry in the digital photography industry. The cameras and related software on ordinary smartphones have continued to evolve, giving would-be adventure photographers a large number of options when it comes to creating and editing photographic content. Mounts and other accessories that are readily available for smartphones made the once-innovative GoPro technology seem ordinary - and the company never delivered on the promise of becoming a media and content giant.
Social media sites like Instagram an Snapchat offer young users filters and editing tricks for free that allow them to create, edit and share their own content.
Despite a recent bump in GoPro shares because of optimism about recently announced new product lines, it looks unlikely that GoPro will ever live up to the early enthusiasm it enjoyed after going public.
Flat revenue and earnings estimates earn GoPro a Zacks Rank #5 (Strong Sell). There’s not much to be gained from shorting a stock at $5/share, so GoPro isn’t necessarily a selling opportunity, but it’s also not a good place to allocate capital in a diversified portfolio.
China Delisting Fear Fades: 3 Solar Stocks to Buy
Wall Street breathed a sigh of relief as Dow Jones inched up 0.4% and S&P 500 rose 0.5% on Sep 30, which marked a reversal from the decline in last week, on reports that the White House was mulling on limiting U.S. investments in China. Specifically, on Sep 27, this news surfaced in major media houses.
Naturally, this spooked investors and resulted in China-based giants like Alibaba and JD.com losing big, which, in turn, weighed on overall market indices. However, over the weekend, assurance from the Trump administration that such reports are inaccurate pushed back U.S. stocks on growth trajectory.
The news also came as a respite for the U.S. solar industry, which has been suffering due to the prolonged trade standoff between the two largest nations of the world.
Prolonged Solar Woes
President Trump and his Chinese counterpart Xi Jinping have been at loggerheads for more than a year now, on terms of trade, slapping elevated tariffs on each other’s products. However, when it comes to the solar market, the conflict between the two nations dates back to the late 2000s. As solar PV manufacturing brands from China came into prominence, the market share of U.S.-made solar panels started to decrease significantly (per a GTM research report).
In 2012, the U.S. Department of Commerce imposed the first round of anti-dumping and countervailing duties (AD/CVD) on imported solar panels from China. In 2014, further tariffs were imposed on Chinese manufacturers. But the biggest blow to the solar industry came in the form of the 30% tariff imposed by Trump on solar panel imports from China in January 2018. This is because the industry depended heavily on imported panels. Per a report by GTM research, 87% of U.S. solar installations used foreign-produced panels in 2016, primarily from China.
In September 2018, the Trump administration imposed 10% tariffs on $325 billion of imports, which included solar module components such as inverters and junction boxes. In May 2019, this tariff level was increased from 10% to 25%.
While such tariffs were intended to protect the domestic solar market, these ended up increasing the price of solar modules in the United States. Per the GTM report, currently, the price of solar modules in the United States is almost 50% higher than in China.
What Does the Current U.S. Stance Mean for Solar?
As is evident from the above discussion, the trade war will do no good to the U.S. solar industry. Therefore, the latest declaration from the U.S. administration that it is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges bodes well for solar stocks. Further, per CNBC, negotiators from China and the United States are expected to meet on Oct 10 to try and move forward on the trade front.
Wood Mackenzie Power & Renewables now projects more than 13 GW of solar capacity additions in the United States in 2019, indicating 25% growth year over year.
If the U.S.-China trade negotiations are successful and import tariff on solar panels from China lowered, the U.S. solar industry would benefit even more.
Stocks to Buy
Considering the aforementioned projection, investors may consider adding the following three solar stocks to their portfolio, which carry a favorable Zacks Rank and boast strong fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Canadian Solar sports a Zacks Rank #1. The company boasts a solid long-term earnings growth rate of 32%.
SolarEdge Technologies also sports a Zacks Rank #1. The company boasts a solid long-term earnings growth rate of 22%.
JinkoSolar Holding Company Ltd. carries a Zacks Rank #2 (Buy). The company boasts a solid long-term earnings growth rate of 20%.
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