I was planning on discussing some of my other stock holdings today, but RF Micro Devices (symbol RFMD) has been on such a roll lately that I feel like I should address it. I went into some detail about the merger between RF Micro Devices and TriQuint Semiconductor a couple of days ago, so I won’t repeat myself today.
However, since the merger was announced (and even well prior to the announcement), RFMD has been on a tear. Take a look at the chart:
After the big jump on massive volume on the day of the merger announcement, the stock kept right on truckin’ and is making new 52-week highs on a daily basis. I said at the time that I was going to wait before cashing in any of my RFMD profits to see how the story of the merger would play out in the market during the upcoming weeks. So far, so good.
The story got a little better yesterday when Bank of America analyst Vivek Arya upgraded RFMD from a “hold” to a “buy” and set a price target for the stock at $10. Here’s a little bit of his reasoning for the upgrade:
“We upgrade RFMD to Buy with $10 PO, or ~40% upside potential from current levels, as its proposed merger with TriQuint would bring together the #3 and #4 players in the radio frequency chip (RF) market to create a powerhouse with ~35% share.”
I will go on record that I believe that the majority of stock analysts have absolutely no clue what they are talking about. I genuinely believe that. If you need proof, go back to 2006 and see what stock analysts had to say about Lehman Brothers, Bear Stears, AIG, and the like. Even though I could care less about the analysts’ actual opinions, I love it when one of my stocks gets upgraded because lots of other traders hang on every word that comes out of the analysts’ mouths. And how other traders feel about a stock is the single most important factor in whether or not a trade will work. If you believe a stock will go up, but everybody else believes it will go down, guess what? Your trade ain’t gonna work. So I welcome any and all news about my stocks that will convince other people that the stock is a good buy.
One last note on the RFMD chart. It never hurts to have technical analysis on your side, and the RFMD chart has a lot of good stuff going for it technically. First of all, there is a pretty well-defined uptrend over the past couple of months. The fact that RFMD is making new 52-week highs means that there is no major resistance keeping the stock down. Finally, a couple of days ago the “golden cross” occurred on the RFMD chart, meaning the 50-day simple moving average crossed above the 200-day simple moving average. The golden cross is a major technical buy signal for lots of technical analysts, and hopefully it will add a little bit more fuel to the RFMD fire in the upcoming weeks.
To read more about my thoughts on the role that technical analysis plays in the stock market or why I am so disrespectful to stock picking “experts” such as market analysts, look for my upcoming book, Beating Wall Street with Common Sense: How I Achieved a 400% Return from my Dorm Room. I have been intentionally vague about the book up to this point, but I’m fairly confident it will be available within the next month or so, so stay tuned!
