One of Warren Buffett's best nuggets of sage wisdom is "buy what you know." And for the most part, that's good advice. What happens, however, when most of the stocks that do "what you know" look lousy? That's where a name like Teradyne, Inc. (NYSE:TER) comes in. It's conceivable that even those folks who own shares of TER don't even have a full grasp of what it is the company does, so it's not even close to a stretch to say investors who don't own any don't have a clear understanding of what Teradyne does, or why it's such a great trading idea right now.
Simply put, Teradyne, Inc. makes electronics testing equipment - the kind of stuff technicians use test hardware in the field, and in the factory. Clients include the military, the wireless hardware industry, computer manufacturers, and more. Competitors include (sort of) names like Agilent Technologies Inc. (NYSE:A) and FormFactor, Inc. (NASDAQ:FORM), though those two companies are better known for chemical analysis and semiconductor manufacturing, respectively. On the other hand, there's a ton of overlap, so if putting Agilent Technologies and FormFactor into the same grouping as Teradyne helps explain the company better, then so be it.
TER, however, is currently offering something more than investors can find with A or FORM... some serious upside.
Both Agilent and FormFactor have been trending lower for a while - FORM since 2010 (though it recently hit yet-another new multi-year low), and A since March of this year. In both cases the stocks' struggles largely reflect waning corporate results, and not-so-great outlooks. Teradyne, on the other hand, though terribly erratic, has made a measurable trend of rising revenue and rising profits since 2009. Oh, the market hasn't always seen it, distracted by one rough quarter here and there, or one less-than-compelling forecast. But, between the trailing P/E of 9.9 and a forward-looking P/E of 10.2 - and 15 earnings beats in a row - it's pretty clear the market has a bad habit of underestimating this company. Traders can use that to their advantage.
Be that as it may, there's another reason investors may want to consider Teradyne, Inc right now... the shape of the chart.
Although it's taken a couple of years to become clear, TER is close to the point of a converging wedge; it's going to have to get squeezed out of it one way or another. While this one looks fairly symmetrical, meaning there's no clear bias up or down, the fact that the stock's been broadly trending upward does imply there's a bullish undertow. But, if the stock can actually clear the descending resistance line (the upper part of the wedge shape), that could ignite a rally after nearly two years' worth of consolidation.
This is definitely one to put on your radar, particularly of you've been less than impressed with Agilent Technologies and FormFactor.