Technology-heavy stocks can be extra risky, as the technology landscape can change quickly. Still, some companies are performing well and seem attractively valued, presenting good opportunities for risk-tolerant investors seeking growth. Meet flash memory chipmaker SanDisk (Nasdaq: SNDK).
The company’s profit margins have been growing as it sells more high-margin items. Its two biggest customers are Apple and Samsung, with SanDisk supplying flash memory for the iPhone 5, for example. That lets SanDisk benefit from these companies’ growth, but also makes it dependent on them. Rapid smartphone growth in China is another expected tailwind, as SanDisk is looking to tap Chinese smartphone makers with its iNAND embedded flash offering.
SanDisk has also seen robust growth in solid-state drives (SSDs) and expects these to account for 25 percent of revenue in the current fiscal year. (Solid-state drives are replacing many traditional hard drives. With no moving parts, they’re faster, quieter, run cooler and use less energy.)
SanDisk has struck some promising partnerships, but it does face able competition.
With the company’s five-year growth rate pegged at double digits by analysts and its forward-looking price-to-earnings (P/E) ratio near 11, the stock is appealingly priced. It even offers a 1.3 percent dividend yield. (The Motley Fool owns shares of Apple.)
Ask the Fool
Q: I’ve been investing directly in a certain company’s stock for a long time without paying any broker commission fees. Can I do that with other companies? – R.D., Venice, Fla.
A: You sure can. You’re using a direct investing plan or dividend reinvestment plan (DRIP). These plans are offered by hundreds of major companies. Learn more at fool.com/school/Drips.htm and dripinvestor.com.
My dumbest investment
Back in the 1970s, I tracked a certain stock for about a year. I became convinced that it never dropped below about $2 per share and often rose to $3 or more, so I invested in it with much of the windfall I had inherited from my grandmother. As I recall, I bought about 14,000 shares for around $2.20 per share, telling myself that, no matter what, I’d sell at $2.
For the first week, my stock went up, and I was looking at a profit of $4,200. But then, alas, it took a dive, dropping below $2. I held on another day or so, and then sold for a loss of about $4,200. A young punk gambling, pure and simple. – M.S., online
The Fool responds: You’re right. Unless you’re very familiar with the company and exactly how it makes its money, you are indeed gambling. Avoid stocks trading for less than about $5 per share. They’re usually risky penny stocks.
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