Thursday, April 29, 2010

Bookkeeping: Adding to Atheros Communications (ATHR) on Gap Fill

We appear to have a textbook pullback on Atheros Communications (ATHR) - allowing a nice entry point. Technically, we see the stock gapped up after stellar earnings (one of the best reports I've seen this earnings season). I sold off 1/5th of the position that day near $42.30 simply to lock in some gains - even though it is wrong to sell any stock at any moment in the new paradigm market. The stock dropped sharply Tuesday on the -2%+ down day in the markets, and then yesterday filled the gap created by the earnings report. That also happened to be the same area as the 20 day moving average. Almost too perfect. In fact, it is rare to see a stock that has such a gap up, fill the gap within a week like that.

With the bounce today, I am going to buy back not only what I sold last week, but more... increasing the already good sized position by another 1.7% or so. This is fundamentally one of the best stories out there, and unlike many things people are chasing into at 40, 50, 60x forward earnings is VERY reasonable versus its growth rate.

To that end, analysts have increased full year 2010 estimates from $2.11 to $2.54 since last week's earnings report, so the stock just got even cheaper. Even a 20x forward PE ratio would give it a $50+ valuation. But I guess it is better to go buy a retail stock at 45x forward estimates instead...

Frankly, Atheros should be doing far better stock wise as the stocks people are chasing are so much more rich in value.

Long Atheros Communications in fund; no personal position

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