From Cabot Wealth Advisory 8/19/10 Sign up for free Cabot Wealth Advisory e-newsletter
This company is a leader in a crucial technology for the iPad and many other products—LEDs (or light-emitting diodes). The company is an Illinois firm called Rubicon Technology (RBCN). Rubicon is the primary supplier of sapphire substrate in the Western hemisphere.
Artificially grown sapphire is coveted as a base on which to build LED lights because it is very hard, second only to diamonds, and produces the brightest white, blue and green light. Sapphire also withstands very high heat and other extreme conditions while continuing to offer exceptional light clarity. The biotech and defense industries in particular prize sapphire LED lights. LEDs, as you’ve probably heard, are electricity-sipping lights that allow ultrathin products like the iPad, iPhone and others to have a reasonable battery life.
Overall, LEDs are expected to grow into a multi-billion-dollar market by decade’s end as everyone from carmakers to municipalities change over to LEDs from compact fluorescent lights (CFLs) and older light bulbs. Not only do LEDs use 60% to 80% less electricity than traditional lightbulbs, they can last 30 to 40 years, meaning cities save on labor costs of replacing bulbs.
Rubicon has a proprietary growth system for its sapphire (real sapphire is too flawed to use for LEDs) that grows six-inch and eight-inch wafers and is evolving toward 12-inch wafers too. Larger wafer sizes allow faster production of LEDs by providing more surface area, so while two- and four-inch wafers have been the industry standard, the industry is shifting to larger wafers. Right now, the market for sapphire is very tight and has allowed Rubicon to post excellent results.
Last week, Rubicon reported a 400% rise in second quarter sales over 2009, to $15.8 million, and an expectations-besting 18 cents a share net income. The company also raised its guidance for the current quarter and stated it sees improving sapphire pricing power ahead. Shares have been sold down the past week on weakness in other LED industry stocks, but Rubicon shares have held up technically and we like that management has executed very well in a difficult environment. Whether or not its products are ending up in the iPad, Rubicon too is a buy.
To learn more about Rubicon and other top Green stocks, click here: Cabot Green Investor.
Brendan Coffey is a member of the Cabot investment team and editor of Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron’s, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report ?
From Cabot Wealth Advisory, 6/24/10. Sign up for free Cabot Wealth Advisory e-newsletter ??
We may be on the verge of a new buy signal, and if we get one, I’ll be putting some money to work. However, right now is one of those times when I don’t have a super-strong conviction about what’s likely to come. ??
On one hand, the market has built a decent-looking bottom during the past few weeks, and there are a few dozen potential leading stocks with good growth stories that resisted the market’s May-June correction. ??
On the other hand, the broad market and even the charts of the major indexes are in rough shape, and this latest upmove has come on super light volume; even the biggest volume day (last Tuesday, June 15) saw the Nasdaq’s total volume 12% below average. So it’s hard to really have faith that big investors are piling into stocks. ??
So what do you do? First, you follow the system—as I said, if our Cabot Tides turn bullish, I’ll be putting some money to work. However, I think taking a gradual approach is the best course of action. That means buying two or three small positions … maybe half your normal investment, dollar-wise. ??
Then, over a few days, if the market is acting well and your stocks are making you money, you can buy a little more, either of your current holdings, or new purchases. After two or three weeks, if all goes well, you’ll be heavily invested in some strong stocks. Of course, if the rally peters out (failures usually occur quickly and violently, so it won’t be hard to notice), you won’t get heavily invested; you’ll stop buying if your stocks aren’t showing you a profit. ??
One tiny company I’m keeping my eye on is Rubicon Technology (RBCN), which isn’t a household name, but is helping to lead the way forward in the LED industry. Here’s what I wrote about the firm in Cabot Top Ten Report earlier this month: ??
“If MEMC Electronic Materials was the raw material supplier (silicon) that benefited greatly from the solar and chip boom of the 2005-2007 period, then Rubicon looks like the winner in supplying raw materials (in this case, sapphire substrates) for the current and upcoming LED boom. The company is a leader in producing these substrates in the Western hemisphere, and is the world leader in larger sapphire wafers, which the industry is moving toward (and which have significantly higher barriers to entry than smaller wafers). The stock is strong today because demand is miles ahead of supply—LEDs in notebooks, networks, LED monitors and TVs are using more and more LEDs, and the industry is racing to expand capacity to meet that demand. That, indirectly, is pushing prices for Rubicon’s wafers up; prices roared ahead 20% sequentially in the first quarter, and management sees higher prices going ahead. Revenues have soared the past couple of quarters and the firm just booked its first profitable quarter in two years. Eventually, this industry will over-expand and prices will fall … but management believes that’s at least a couple of years off. In the meantime, we see major growth ahead.” ??
Since that time RBCN has broken out powerfully from a choppy base, successfully completed a share offering and, importantly, has refused to give up ground during this week’s slide in the market. The stock is relatively thinly traded, but business is picking up in a big way, and if the LED trend continues for a few more quarters, Rubicon will have a bright future. I think a little could be bought around here, or preferably, on a pullback toward 30. ??
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
From Cabot Wealth Advisory 4/28/08 Sign up for free Cabot Wealth Advisory e-newsletter
One fun thing about the stock market is that a stock will occasionally pop up in an industry that you’ve never even heard of, much less thought about.
Hidden among the ranks of late-2007 IPOs was the coming-out party for tiny ($37 million in sales) Rubicon Technology (RBCN), a company whose stock in trade is monocrystalline sapphire (and other crystalline products). Rubicon supplies this optical-quality sapphire to all kinds of high-tech companies that use it to make LEDs, radio-frequency integrated circuits (RFICs, whatever they are), blue laser diodes, optoelectronics and the like.
The most obvious uses for sapphire LEDs are for the displays on your hand-held phones and PDAs, camera flashes, computer backlighting, public signs, auto lights and traffic signals.
The intriguing part of Rubicon, which was founded in 2000, is that there are military, aerospace and other uses that they don’t seem to talk about much.
It’s not easy to gauge the prospects for a company with such a limited product line. How many precisely-machined sapphire tubes, rods, wafers and cylinders does the world need? The only hint we get is from Rubicon’s sales, which increased 2% in 2005, 27% in 2006 and 64% in 2007, the first year the company made a profit.
RBCN made a great run after its IPO, doubling from 14 to well over 30 before correcting back to around 22. Most stocks need this kind of pullback after they’re big going-public run loses steam. The question will be where the stock goes from here.
Strong Q1 results on April 24 should have lifted the stock, but the company failed to lift 2008 guidance until officers were clear that planned additional manufacturing capacity would indeed come online on schedule.
The company’s new facility in Bensenville, Illinois, is building capacity, including the manufacture of sapphire crystals eight inches in diameter.
Aggressive investors looking to find a new tech stock early in its career should keep an eye on Rubicon.
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