At Schaeffer’s Investment Research, we employ a three-tiered analysis approach
known as Expectational Analysis® (EA) that was created more than 2 decades ago.
EA utilizes traditional methods of fundamental and technical analysis and
combines these with a third, crucial look at investor sentiment. It is this
third layer of analysis that provides a critical edge in selecting stock and
option plays. Both anecdotal and quantifiable measures of investor sentiment
provide a window into how the investing crowd perceives reality. These
perceptions serve as powerful contrarian indicators, as the crowd tends to move
as a herd and is, to paraphrase the venerable contrarian Humphrey Neill, “right
during the trend but wrong at both ends.” A look into the psyche of the
collective investing masses, while also taking into account important technical
and fundamental variables, can offer a reliable recipe for trading success.
The latest opportunity unearthed by the EA methodology is Amkor Technology (AMKR),
a leading provider of semiconductor packaging and test services. According to
the company’s website, Amkor pioneered the concept of outsourcing these critical
services, helping make products such as cell phones, digital cameras, and MP3
players come to fruition in an efficient manner. With facilities located
throughout “Asia’s microelectronic manufacturing centers,” the company now acts
as a “strategic contract manufacturing resource for many of the world’s leading
semiconductor companies.”
Last month, the company reported first-quarter earnings of $35 million, or 18
cents per share, a 3% advance from its year-earlier profit and 3 cents per share
better than the consensus estimate. Sales were about 1% higher during the
reporting period to $651 million, also topping Wall Street’s target of $640.5
million. The equity’s Zacks rating currently stands at 2 (the second-highest
score), suggesting that earnings momentum remains positive.
AMKR shares have been on the move in 2007, gaining nearly 60% so far this
calendar year. Throughout this monster uptrend, the stock has benefited from
technical support in the form of its 50-day moving average. The most recent
retest of this trendline powered the equity above short-term chart resistance in
the 14.50-14.70 region and took AMKR to a new 3-year peak. This breakout is a
positive technical sign, especially given that AMKR continues to trade atop this
threshold.
As followers of the EA method, we ideally like to see solid price action persist
despite a backdrop of skepticism; this implies that there could be additional
money waiting on the sidelines that hasn’t yet been committed to the bullish
cause. It seems as though there is plenty of room on the bullish AMKR bandwagon
- even Wall Street has been hesitant to commit. The latest data from Zacks
indicate that just 1 of the 6 analysts following the shares has deemed the stock
worth of a “buy” rating. There are still 4 “holds” and a “sell” rating on AMKR,
paving the way for future upgrades or additional broker attention.
Investors have been hedging against Amkor’s uptrend for several months. Short
interest on the stock has risen consecutively since the beginning up the year,
gaining 56.8% during that time frame. In fact, the equity’s short-interest ratio
of 4.2 is near a 17-month high. Moreover, roughly 8.5% of the stock’s float
available for public trading is devoted to the short side. Should the stock
continue its ascent, it could benefit from any short-covering activity, as these
bearish investors opt to head for the exits.
