Edge Picks / Market Commentary

Who Knew a Copper Cable Company Could Compound at These Rates?!

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 2 years of experience investing in financial markets. As a value investor, Declan embraces the lessons of Warren Buffett and his disciples when making investing decisions. With an emphasis on business fundamentals, his strategy focuses on finding stocks with excellent management, a competitive advantage, and those that are selling at discount to their real value

Picks | Discover high-quality growth stocks to add to your watchlist.

With Q3 earnings season upon us, there is no better time to find investment deals in the market. Simply look for beaten-up stocks whose fundamentals can withstand any economic storm. And while you’re at it, check out these high-quality growth companies.

In this week’s Edge Picks, we explore:

💽 Two semiconductor stocks with solid business fundamentals and serious upside potential.

🔌 A copper cable company generating 38.90% ROIC.

🧪 A genetic testing stock growing revenue at 100.72% annually over the past five years.

Let’s dive in.


Quality Compounders

MaxLinear 2022 Business Snapshop | MaxLinear

MaxLinear (MXL)

Industry

Semiconductors

Overview

Looking for an undervalued microchip stock? MaxLinear is a dynamic and innovative technology company that specializes in developing high-performance radio frequency (RF) and mixed-signal semiconductor solutions. These cutting-edge products are instrumental in enhancing the efficiency and speed of modern communication networks, enabling the seamless transmission of data in an increasingly connected world. This includes a wide range of electronic devices, including broadband modems, home networking routers, 4G/5G base station equipment, and fiber-optic modules for data networks. With such a diverse range of solutions, it is no wonder why MaxLinear has established itself as a key player in the connectivity and communication market.

Financials

Return on Invested Capital: 16.40%

Profit Margin: 6.40%

Earnings Per Share (5-Year): 69.50%

Revenue (5-Year): 21.70%

Debt to Equity: 0.16

Market Cap: $1.221 Billion

Current Stock Price: $14.97

Intrinsic Value: $25.30

Margin of Safety: 40.83% Below Intrinsic Value

Competitive Advantages

 Innovative Technology Leadership: MaxLinear’s reputation as a pioneer in the development of high-performance RF and mixed-signal semiconductor solutions is a testament to its innovative prowess. The company consistently pushes the boundaries of what’s possible in communication technology, with a focus on delivering faster, more efficient, and reliable solutions. This technological leadership places MaxLinear at the forefront of industries reliant on data transmission, ensuring they remain a go-to provider for these solutions.

 Broad Application Spectrum: MaxLinear’s products find applications across a wide spectrum, including telecommunications, data centers, and beyond. This diversification minimizes risk, as the company’s technology remains relevant across various industries and market conditions. As the demand for high-speed data transmission continues to grow in the digital age, MaxLinear’s versatility positions it for sustained success.

 Strong Industry Partnerships: MaxLinear has established key partnerships with industry giants and leading clients, reflecting their reputation for reliability and innovation. These partnerships not only enhance their market presence but also provide valuable insights into industry trends and evolving customer needs. By investing in MaxLinear, you gain access to a company that has not only secured its place in the industry but also fostered strong, enduring relationships with major players.

Axcelis Technologies Breakdown | Axcelis

Axcelis Technologies (ACLS)

Industry

Electronics Manufacturers

Overview

In case you aren’t impressed by MaxLinear, Axcelis Technologies is another dynamic company at the forefront of the semiconductor industry. With a rich history spanning over four decades, Axcelis has established itself as a leader in providing innovative solutions for ion implantation and other critical processes in semiconductor manufacturing. Not only that, but Axcelis also supports its clients with a suite of aftermarket lifecycle products and services, including used tools, spare parts, equipment upgrades, maintenance services, and training programs. As the demand for advanced microchips continues to surge, this strong positioning in niche markets puts the company at the forefront of one of the most critical industries in the world today.

Financials

Return on Invested Capital: 26.70%

Profit Margin: 19.50%

Earnings Per Share (5-Year): 9.10%

Revenue (5-Year): 17.50%

Debt to Equity: 0.07

Market Cap: $4.144 Billion

Current Stock Price: $126.27

Intrinsic Value: $157.83

Margin of Safety: 20.00% Below Intrinsic Value

Competitive Advantages

 Specialized Ion Implantation Expertise: Axcelis is renowned for its state-of-the-art ion implantation and processing solutions, which are critical in creating advanced semiconductor devices. Their innovative technology not only enhances device performance but also enables the production of smaller, more powerful chips, staying ahead of the ever-evolving tech landscape.

 Industry Experience and Expertise: With over 40 years of experience, Axcelis has accumulated a wealth of industry-specific knowledge and expertise. This deep-rooted history allows them to understand the unique challenges of semiconductor manufacturing and tailor their solutions to meet the evolving demands of the market.

 Global Reach and Customer Trust: Axcelis serves a global customer base and has earned the trust of some of the world’s leading semiconductor manufacturers. Their commitment to quality and reliability, coupled with a worldwide presence, positions them as a trusted partner for businesses seeking reliable and innovative solutions in semiconductor manufacturing.

Encore Wire Financial Forecast | Encore Wire

Encore Wire (WIRE)

Industry

Industrial Products

Overview

Check out this company’s financials! Encore Wire is a top copper electrical building wire and cable producer that should not be overlooked. With an enduring presence in the United States, the company specializes in producing high-quality wire solutions used in various electrical applications. This includes a wide range of copper electrical wires, including residential, commercial, industrial, and renewable energy cables. With such a critical role in supporting the infrastructure and energy needs of the US, Encore Wire may not be the sexiest pick, but it sure knows how to compound its capital effectively.

Financials

Return on Invested Capital: 38.90%

Profit Margin: 20.70%

Earnings Per Share (3-Year): 70.40%

Revenue (3-Year): 21.00%

Debt to Equity: 0

Market Cap: $2.813 Billion

Current Stock Price: $178.33

Intrinsic Value: $87.56

Margin of Safety: 7.22% Below Intrinsic Value

Competitive Advantages

 Quality and Reliability: Encore Wire has earned a stellar reputation for the consistent quality and reliability of its electrical building wire and cable products. The company’s unwavering commitment to excellence ensures that its customers receive dependable, durable, and high-performance solutions for their electrical needs. This trust in product quality not only attracts loyal customers but also strengthens Encore Wire’s position in a competitive market.

 Diverse Product Portfolio: Encore Wire’s extensive range of copper electrical wires spans various applications, from residential and commercial to industrial and renewable energy cables. This diversity positions the company to cater to a wide array of customer requirements. It enables Encore Wire to adapt to changing market dynamics and capitalize on growth opportunities in different sectors, enhancing its resilience and market presence.

 Strong Market Presence: Encore Wire has a significant and well-established presence in the United States, which is a critical advantage. This robust market presence not only allows the company to serve a large customer base but also positions it to benefit from the continuous demand for electrical infrastructure in the country. The company’s brand recognition and distribution network make it a prominent player in the industry, enhancing its competitiveness.


Rising Star

Fulgent Quarterly Core Revenue| Fulgent

Fulgent Genetics (FLGT)

Industry

Medical Services

Overview

Don’t sleep on this one. Fulgent Genetics is a forward-thinking genetic testing company, distinguished by its state-of-the-art technology and comprehensive range of DNA testing services. The company’s innovative tests provide critical insights into a wide array of medical conditions, from hereditary diseases to cancer risk and COVID-19 detection. With a track record of rapid growth and industry recognition, Fulgent Genetics stands at the forefront of the genomics revolution.

Financials

Gross Margin: 29.45%

Revenue (5-Year): 100.72%

Debt to Equity: 0.02

Cash on Hand: $458.43 Million

Market Cap: $707.47 Million

Current Stock Price: $23.64

P/S: 2.32

Catalysts

 Rapidly Growing Genetic Testing Market: The genetic testing industry is witnessing exponential growth, driven by increasing awareness of personalized medicine and the demand for early disease detection. Fulgent Genetics is well-positioned to capitalize on this trend with its extensive portfolio of genetic tests, catering to a broad range of medical conditions. As genetic testing becomes a pivotal component of healthcare, Fulgent Genetics is poised for sustained expansion and market leadership.

 COVID-19 Testing Expertise: Fulgent Genetics demonstrated its adaptability and expertise during the COVID-19 pandemic by swiftly pivoting to offer highly accurate and scalable COVID-19 testing solutions. This experience not only contributed to public health but also positioned the company as a trusted player in diagnostic testing. With infectious disease management remaining a global priority, Fulgent Genetics is likely to continue thriving in this essential sector.

 Research Collaborations and Partnerships: Fulgent Genetics has actively engaged in collaborations and partnerships with pharmaceutical companies, research institutions, and healthcare providers. These partnerships not only enhance the company’s research capabilities but also open doors to new revenue streams and product innovation.


Our Methodology

Quality Compounders

Our first goal as investors is to never lose money. The most effective way to accomplish this is by investing in world-class businesses that are trading below their intrinsic value. A world-class business is financially healthy (i.e. high-profit margins, growing revenue and earnings, as well as little to no debt), has multiple durable competitive advantages, and has a brilliant management team (i.e. ROIC measures how effectively a CEO allocates capital). We strive to buy these businesses below their intrinsic value because it limits the downside risk while improving the upside potential (i.e. think of it like buying a Ferrari at 50% off, then selling it to someone else at full price, risk-free). If one can find these opportunities and their conviction is strong, then one should take full advantage before the rest of the market realizes what they are missing.

Rising Star

Small or early growth companies (i.e. less than $1 billion market cap) may not be profitable or have a durable competitive advantage quite yet, but they still pack a punch. Investing in these businesses is a tricky game, but if you can spot them before they take off, it may be the only investment you ever need to make. To spot a rising star, the business must be financially stable (i.e. high operating margin, growing revenues, little to no debt, and ample cash on hand), have a large addressable market with multiple catalysts, and a highly ambitious and motivated management team that is willing to do whatever it takes to succeed. If you can find early-stage businesses with these characteristics, then you may be on the path to financial freedom quicker than you think.

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 2 years of experience investing in financial markets. As a value investor, Declan embraces the lessons of Warren Buffett and his disciples when making investing decisions. With an emphasis on business fundamentals, his strategy focuses on finding stocks with excellent management, a competitive advantage, and those that are selling at discount to their real value

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