TRADE INSTRUCTIONS
Date: March 15, 2017
Name: STMicroelectronics N.V.
Symbol: STM (Exchange: NYSE)
Type: Open
Limit: Buy below $15.50

TRADE TARGETS
Holding Period: 3 months
Target Return: 14.5%
Annualized Return: 45.2%
Target Price: $17.25
Stop Loss Level: $13.50

COMPANY DESCRIPTION
STMicroelectronics NV is a provider of semiconductor solutions based in Europe. The areas of application include industrial tools, automotive and transportation, connectivity, energy generation and distribution, Internet of Things (IoT), light-emitting diodes (LEDs) and general lighting, medical and healthcare, motor control, multimedia and power management. Link to company website.

TRADE RATIONALE
Semiconductor stocks are on a roll, as evidenced by the fact that no less than 58 of them presently have an RSI of 80 or higher. And STM has been rolling right along with them, having doubled in valued since last August. For that reason, its trailing twelve months PER of 80x may seem a bit rich, but that translates to only 20x on forward estimated earnings due to its rapidly escalating growth in revenues and profits. As a result, STM has a PEG ratio of just 0.47 which is well below that of most of its peers.

The stock dropped last week amid reports of a factory fire at one of its production facilities in France, and an as yet unsubstantiated rumor that it may be late in delivering its 3D sensor for the next iteration of Apple’s iPhone 8. But the factory fire turned out to be a relatively minor overheating issue due to a faulty switch that has already been resolved, and neither STM nor Apple has issued a statement regarding a delay in production of the iPhone.

We view this brief lull as an opportunity to jump in on a high-quality momentum stock still on the rise. As a result of last week’s dip, our RPM noticed that STM is trading slightly below its 52-week high of $15.73 achieved on March 1, and appears close to breaking out above that level given its higher closing prices over the past three days.      

NOTE: STM is optionable, but trades on very low volume so use limits when placing orders.