Barchart.com's Chart of the Day - Power Solutions International (PSIX) for Nov 12, 20

Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.

I think an investment in GTAT at these low levels could pay off big.

Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.

For today's essay, it would be wise to remember the old investing adage: "The trend is your friend."

As most investors already know, investing in trends is one of surest ways to success in the stock market. But while the phrase itself is simple enough to understand, we often find that most investors don't know which trends to follow... or even worse, invest in the wrong ones.

Specifically, we generally find that investors want to focus on economic trends... things like interest rates and global debt/GDP ratios. Some investors go so far as to follow the cover model for the current year's issue of The Sports Illustrated Swimsuit Edition, believing that when the model comes from the U.S., the S&P 500 is likely to outperform.

Not to berate the homemade economists of the day, but these investors are most likely wasting their time.

The truth is, economic trends can (and should) be mostly ignored by investors.

Even economists -- people who have dedicated their entire lives to following macroeconomics -- can't accurately predict when a major economic event has (or will) occur. It took the National Bureau of Economic Research (NBER) 15 months to announce that the recession ended in 2009 was officially over.

But if not the economy, then what trends should investors focus on?

StreetAuthority analyst Michael J. Carr answers that question in his latest issue of Maximum Profit. As Michael recently told his subscribers:

As investors, it is more important to focus on trends within the stock market rather than trying to beat the experts to a recession call. As the strength of the economy changes, investors move between different sectors in the stock market. Spotting these trends can be more valuable than beating the NBER to announce when a recession starts.

As the economic cycle progresses, investors become more and less aggressive. This behavior leads to sector rotation in the stock market.

As one of the largest investment research companies in the country, our experts here at StreetAuthority have made careers out of assessing these kinds of trends. From commodities specialist Dave Forest to our resident high-yield expert Nathan Slaughter -- there isn't a corner of the investing universe that doesn't get covered by at least one of our talented analysts.

Michael J. Carr has now taken that research one step further...

A few months ago Michael developed an investing system designed to individually analyze each of the trends that the StreetAuthority analysts are covering. Using this proprietary system, Michael weeds through all the analysts' recommendations -- across all their premium newsletters -- and selects the stocks he thinks have the most potential to outperform the market in the coming months.

The results thus far have been promising...

On August 16, Michael's system identified a "buy" on Hexcel Corp. (NYSE: HXL), a $4 billion industrial manufacturing company with a focus on lightweight materials used to build airplanes and wind turbines.

Amy Calistri originally identified Hexcel in her August issue of Stock of the Month. At the time, Amy thought growing orders for airplanes would spur demand for the company's lightweight transportation materials.

Turns out she was right.

The Chart of the Day is Ubiquiti Networks (UBNT). I found the stock by using Barchart to sort today's New High List for Weighted Alpha and this stock was 280.70+. You can see from the chart that there have been a series of Trend Spotter buy signals including the one on 9/26. Since then the stock is up another 18.98%.

They are engaged in the business of designing, manufacturing and selling broadband wireless solutions worldwide. Their products and solutions include radios, antennas and management tools and other applications in the unlicensed radio frequency spectrum.

Random Thoughts


You have to be careful not to chase your own tail when a market is hovering around new highs.

Thursday was ugly but Friday was a do over for the Ps and Rusty.

The Quack snapped back nicely too but didn't quite erase all of Thursday's losses. Still, over a 1 ?% gain is nothing to sneeze at.

As I said on Friday morning: "...if, and that's a big if, the market rallies an takes out Thursday's high, I think it would be off to the races. It would suggest that Thursday's action was just a shakeout/fakeout. In fact, I'm seeing buy setups in the Q shares. They have a Double Top Knockout look to them (email me if you need the pattern).

Errata-On Friday I wrote "inverse Q shares." I meant to write "leveraged." I know, big difference.

Considering the above, now that the shakeout/fakeout is behind us, I think this we could be seeing new highs on the horizon. You know the routine though, take things one-day-at-a-time.

As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

Quote of the day

Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker also BI)

Chart of the day



Forget IPOs. Companies are issuing bonds and secondaries at a record clip. (WSJ)

Markets

Are we in a bubble? (Crossing Wall Street)

The case for muni bonds. (The Guardian)

More signs of investor enthusiasm for equities. (FT Alphaville, WSJ)

The implied volatility on gold miners is coming down. (Focus on Funds)

Apple

Japan has become a growth market for iPhones for Apple ($AAPL). (WSJ)

On the disconnect between Apple the company and its stock. (Kevin Kelleher)

Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires' club.

The best part is that today, every investor can participate in this strategy -- without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past several years, thanks to huge corporate cash reserves, low interest rates and volatility, and the increasing importance of cutting costs and boosting growth to keep shareholders happy.

That's the funny thing about bull markets: No matter how high the market climbs or the returns earned, it's never enough to gratify investors. That's why this strategy has become so popular that more than $650 billion of transactions have taken place this year alone, with the biggest deals creating headlines around the world.

The strategy I'm talking about is mergers and acquisitions, or M&A. You may have heard of the Warren Buffett-led $23 billion takeover of Pittsburgh-based ketchup maker Heinz and the merger of airlines U.S. Airways (NYSE: LCC) and AMR Corp. Those deals and many others have taken place this year alone. Pending deals include private equity firm Cerberus Capital Management looking to buy BlackBerry (Nasdaq: BBRY) and clothier Men's Wearhouse (NYSE: MW) being pursued by rival Jos. A. Bank (Nasdaq: JOSB).

The way through which big investors -- even those not directly involved with individual M&A deals -- make fortunes is with a strategy known as merger arbitrage. In fact, you don't even have to be a big investor to use merger arbitrage, which is simply the selling of the acquiring company's shares and the concurrent buying of the acquired company's stock. The way it works is the target company's shares often sell at a discount to the value of the company doing the acquisition due to the risk of the merger not occurring or being delayed. It is the difference in price -- which becomes profit for the investor.

Apocalyptic fears have gripped the minds of Americans over the past few years, and Hollywood has capitalized on them with movies, television series and reality shows. While a zombie virus may be far-fetched, fears of inflation and market volatility are better grounded in reality.

Out of Alabama comes a story that underlines what becomes important if inflation really does get out of control. A would-be car buyer whose credit was less than exemplary made an unconventional down payment -- a shotgun.

While this is certainly more of a lesson in subprime lending standards going beyond real estate, there is a small sliver of knowledge to take away here. In a highly inflationary environment, gold becomes less important than "real" hard assets -- practical items like food, water, shelter and, of course, weapons.

Before the survivalists start sending this article to everyone they know, let's step back and take a look at the gun-making industry from a pragmatic point of view. We know that fear creates opportunities for profit, and this is reflected in the number of gun sales amid the Obama administration's position on gun control.

Shares of gun makers have soared this year: Smith & Wesson (Nasdaq: SWHC) is up 34%, and Sturm, Ruger & Co. (NYSE: RGR) is up 63%. Even after Congress rejected new restrictions on gun ownership, these companies have continued to post record gains.

Smith & Wesson has been reporting impressive numbers and yet remains undervalued by Wall Street. It has a price-to-earnings growth (PEG) ratio of just 0.3, and in its most recent quarter, earnings rose 42% from the same period last year. Margins have been climbing as well, to 42% from last year's 37%. Management is optimistic and has raised its expectations for next year, to $615 million in revenue and earnings per share (EPS) in the range of $1.30 to $1.35. The company also expects annual growth of more than 30% over the next five years.

Smith & Wesson's price-to-earnings (P/E) ratio of just 8.5 compares favorably with its largest competitor, Sturm Ruger, which trades at 15.3 times earnings. Smith & Wesson looks better from a price-to-sales standpoint as well, at 1.2 versus 2.3 for Sturm Ruger. The fact that Sturm Ruger reported EPS gains of 72% but has a forward P/E of 18 is evidence that the Street views its growth as unsustainable.

Smith & Wesson is also committed to developing better products, as seen in its increase in R&D spending, up to $1.3 million from $1.1 million in the same quarter last year. The focus on superior weapon manufacturing seems to be paying off. Recently, the company signed a five-year contract with the Los Angeles Police Department, which was impressed by the quality of its trademark M&P pistol series.

Smith & Wesson is growing at more than twice the industry's expected rate of 13%, but considering that it's trading at less than 9 times earnings, SWHC would still look like a buy if it were growing at half its expected rate. SHWC currently does not pay a dividend, but management recently announced a $15 million round of share buybacks.

The average analyst target price for this stock is about $13.50, which gives Smith & Wesson 27% upside from current price levels.