Last week, I posted an investment report titled “3 Must-Own Tech Stocks.”
In the intro of that report, I stated that I do NOT think the stock market has bottomed yet. The Fed waited too long to raise interest rates from their COVID-related emergency levels, so Fed Chair Powell is way behind the curve on curbing inflation.
Strong employment numbers are now the Fed’s enemy…
Friday morning, we got the latest Non-Farm Payroll report, and it showed the unemployment rate fell in September. That’s the opposite of what the Fed needs to see. If Americans are still getting new jobs, it means they will have money in their pocket and spend it. In economic terms, that means demand for stuff is likely to remain high, so there’s no reason for the inflation rate to change much.
It’s a painful thing to acknowledge, but the Fed needs to see people losing their jobs before it can have confidence that inflation is going to moderate. Because unemployed people tend to spend less money…
Of course, the Fed members never come out and say that they’re trying to get people fired. It’s kind of an unpopular thing to say. Instead, they say the U.S. economy is likely to experience more pain. And these Fed governors have been doing their best impersonation of Mr. T as Clubber Lang from Rocky III…
“My Prediction? PAIN!”
My point in reiterating all this is that I do not believe it is time to load up on stocks. BUT – there are a select few stocks out there that really can buck this bear market trend. And when this Fed-driven bear market ends, these stocks will be leaders. That’s why I call them “Must-Own” stocks.
The reason I say that they are must-own is because of earnings. Each of these stocks is experiencing some pretty stunning earnings growth that is likely to continue regardless of what the U.S. economy does over the next few months.
Case in point: Aehr Systems (NASDAQ: AEHR)
Aehr Systems makes test systems that make sure semiconductors work like they are supposed to before they are shipped out of the factory. It’s a critical and underappreciated aspect of the semiconductor fabrication process.
Aehr Systems is particularly interesting because they make test systems for silicon carbide chips, which are much different from regular silicon chips. For one, the failure rate is higher because silicon carbide chips are harder to make. And so, the testing process is more rigorous.
And two, because silicon carbide chips can operate at much higher temperatures (up to 200 degrees celsius), they are the go-to chip for the entire electric vehicle (EV) market. If you want more detail on this, I’ll refer you again to my report here.
Because I want to talk about the earnings report that Aehr Systems delivered last night. It was an absolute barnburner.
Anatomy of a Blowout
Aehr brought in $10.7 million in revenue for the third quarter, 88% better than last year. Analysts were expecting $8.5 million in revenue. Earnings per share came in at $0.05 vs. expectations of $0.01.That is simply a massive, massive beat. This is why the stock is up 21% as I write, while the Dow is getting pounded, lower by over 500 points.
Here are a couple of press release gems from the CEO:
“We are off to a good start this year, finishing the [fiscal] first quarter with revenue and net income ahead of consensus estimates, and with strong bookings of $19.1 million.
We are currently engaged or in discussions with almost all the existing and future silicon carbide suppliers regarding our unique, low cost, multi-wafer level test and burn-in solution…
The silicon carbide market for electric vehicles and its supporting infrastructure requirements are growing at a tremendous rate…”
Please note where the CEO says the company has $19.5 million in bookings. That $19.5 million in bookings came during the just-ended quarter. That’s new business, and Aehr will certainly fill those orders during its current fiscal year.
But get this, despite the massive earnings beat last quarter and that $19.5 million in new orders, Aehr Systems DID NOT RAISE ITS EARNINGS GUIDANCE for the full year.
That means that more earnings beats are coming over the next few quarters. Aehr Systems shares are going a lot higher.
As I said, it’s a must-own stock…
Until next time,
The Profit Sector