After more than a year when an outperformance rating was given on Cree (NASDAQ:CREE), it has turned out to be an overachiever with 112% returns. Cree is a LED lighting company which has always focused on delivering the best performance at the lowest cost.
Benefiting from lights
The company has to face tough competition from its peers such as Philips and General Electric, but since Cree is a pure LED lighting company, it has withstood the competition. During the beginning of this year, it was anticipated by many analysts that Cree’s lighting business would suffer due to tough competition from bigger corporations. Moreover, according to analysts, Cree was priced for perfection and there wasn’t much upside left.
But Cree has proved everyone wrong, with its stock up 50% and the company seems set to maintain its growth momentum. Its stock price rose after the company updated its guidance for the March quarter. The stock price also received a boost on account of a new product launch, which the company calls “The Biggest Thing since the Light Bulb.” Cree has launched a 40-watt replacement bulb for $9.97, breaking the $10 barrier which could spur LED adoption further.
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- CREE 15-Year Financial Data
- The intrinsic value of CREE
- Peter Lynch Chart of CREE
Last year, Cree was in peril due to the falling prices of LEDs, but the same thing has now turned out to its advantage as lower prices will act as a catalyst for consumer adoption. Moreover, Cree’s new launch would deliver the same amount of light as an incandescent bulb, while consuming 84% less energy and lasting 25 times longer. The company is constantly working to deliver more lumens per dollar and its new bulb is one result that might yield a good return for the company.
The prospect of the LED lighting industry is increasing day by day. Europe, which is considered to be the biggest lighting market in the professional lighting industry, now prefers LED solutions. According to IMS Research, LED lighting would double in the next three years. This shows a huge potential for Cree in the future and with the current pace of growth, its stock prices are expected to rise further.
Himax: Another growth stock
We shall now consider another company that's not well-known. We are talking about Himax Technologies (NASDAQ:HIMX). Its display-drivers have been used by consumer electronics giants such as Apple, Dell, Samsung, etc. and many more. Its product categories range from monitors to mobile computing devices.
Its stock has gained more than 150% in the past one year and analysts are expecting a further increase. Moreover, there are rumors of Himax being a component supplier to Google glass, which has spiked its stock prices further.
There are a number of reasons which points out the participation of Himax in the Google glass project. We shall see some them. Firstly, Himax CEO Jordan Wu was excited about “head-mounted display application” for which the company has shipped LCOS microdisplays on a “pilot” basis. In addition, the investigation by some people also revealed that the glass panel on the device was a “perfect match” to Himax’s offering.
The microdisplay has been a part of Himax’s non-driver business, which has grown at an increasing rate. Management expects its non-driver business to outperform its driver IC business in the future. If Himax’s participation in the Glass project turns out to be true, then the company would benefit a lot since the Google Glass is a highly-anticipated device that might bring wearable computing to another level.
Google Glass could be a breakthrough in computing, but it still remains a speculation. Moreover, this was not the reason behind Himax’s speedy ascent over the past one year. Although the euphoria around Google Glass is new, but Himax’s business of supplying drivers to almost all consumer electronic devices is already strong.
The company has a long list of clients, which is one of the key drivers of its growth. For example, Himax supplies drivers to Wintek, which makes touch panels for the Apple iPhone and the iPad. In this way, the company has a tag of being an Apple supplier. Himax has benefited highly from the sales of iPad, especially the iPad mini.
Both these stocks have performed well in the past one year, and their future prospects seem to be positive. But, choosing one among them is a difficult task. Himax, trades at a P/E of just 13.5 times even after its solid ascent, and seems like a far more prudent option than Cree which trades at a trailing multiple of 107 times. Himax seems to be a better investment option as it has a great business, and it might profit from the next big thing in computing, and sells for an inexpensive P/E.