Back in June I recommended the purchase of two small-cap tech stocks (“Top Tech Takeover Targets”), one of which – Synaptics Inc. (SYNA) – I subsequently sold last month after discovering that officers of the company have been huge sellers of the stock this year. We booked a small gain in that holding, but our other choice – Applied Optoelectronics (AAOI) – has shot through the roof so we are now closing out that position at a 138% profit in just three months!

Ironically, there has been no takeover talk that we know about concerning AAOI to drive its price higher, but at this point we have achieved our investment goal and do not see the point in holding out for further gains since the company is no longer as attractive of an acquisition candidate given its much heftier price tag.  The reason for the recent run-up was confirmed two weeks ago when the company increased earnings guidance for the current quarter, from a range of 16 – 21 cents per share up to 26 – 29 cents, while also increasing revenue expectations by 15%.

It may turn out that our original thesis was correct, in which case AAOI would surge even higher if a potential buyer of the company steps forward. But having already achieved an annualized gain of more than 500% in this stock, we are reluctant to violate the Wall Street adage “the bulls make money and the bears make money, but the pigs get slaughtered.”

Sell Applied Optoelectronics.