“By This Time Next Year … a Huge Winner” Tobin Smith’s ChangeWave

by Travis Johnson, Stock Gumshoe | April 5, 2008 7:10 pm

This one was sent in by a reader earlier today, so I thought I’d quickly get out a note about … this will be shorter than your average Gumshoe writeup, but hopefully still packed with pithy comments and one interesting stock idea.

This is from Toby Smith for his $79 ChangeWave service, and it’s for a specialty chip maker.

Here’s the basics:

This is a company that has bet big on Blu-Ray and should benefit from pent up demand now that there is a single HD standard for DVDs and sales should pick up. He said the ChangeWave alliance, which is a market research group of people who get his newsletter for free in exchange for answering surveys, notes that 44% of people are planning to buy a Blu Ray player this year.

He compares the pent up demand to the iPhone, which helps to get your attention regarless of whether or not it’s relevant.

And he says the shares are picked by analysts to go back up to about $40 — but that he predicts a price of $75, which would get it back to it’s high from last year.

The PE is very low, according to Smith — trailing 10, forward PE of 8.

So what do we have here?

Well, I can’t give you a lot of backup research here, but it is a company I’ve been interested in since they fell from grace — one hates to buy a stock that has cratered so badly, but on the flip side the temptation to buy an outright bargain is difficult to resist. I’ve been fighting those two angels on my shoulders for several months without making a move.

This stock is, methinks,

Sigma Designs (SIGM)

They are indeed the dominant chipmaker for Blu Ray at the moment, though I don’t know how stable their leadership position will be as Blu Ray moves into the mainstream and dramatically picks up volume. Suppliers probably weren’t all that excited about competing for that business until recently, but I bet they are now.

Sigma’s other big capability is in IPTV chips — internet protocol television is making some headway in the US, but is really an international story as premium TV networks build out based on this system instead of on older cable or satellite paradigms. If countries need to build up infrastructure, why not just build up high speed internet and use IPTV to deliver television over that same network? That’s a simplification, of course.

So Sigma is the company that makes the specialty chips for these two video applications, Blu Ray and IPTV. They’re not the only one in either business, but they do have a good position. And they are being picked here by Tobin Smith — I know they’ve also been picked in the past by the Rule Breakers folks at the Motley Fool, though I don’t know at what price (or if they still like it).

Is it worth your money? I don’t know … but the shares are down at $23, a dramatic fall from $73, and they are profitable. Maybe worth investigating … and if you do so, please share.

And enjoy the rest of your weekend!

Source URL: https://www.stockgumshoe.com/reviews/changewave-investing/by-this-time-next-year-a-huge-winner-tobin-smiths-changewave/

  1. Dividends4Life
    Apr 5 2008, 10:03:22 pm

    > One hates to buy a stock that has cratered so
    > badly, but on the flip side the temptation to
    > buy an outright bargain is difficult to resist.

    I’ve fought that battle before and when I lose it is usually twice (the battle, then the stock),

    Best Wishes,

  2. Wayne
    Apr 6 2008, 10:22:28 am

    Thank you, Gummy – for responding – and so quickly! I’ve not started further investigation – but if I turn up anything, I will definitely share. Thanks again!


  3. spreadtrader
    Apr 6 2008, 10:43:06 am

    (SIGM) looks like a technical “buy”. Key Fibonaccii support is holding at 78% on the weekly chart and the daily chart just filled a gap at 24.12. Momentum indicators are divergent and a close above 24.12 would be mildly bullish, with a close above 27.25 even better. Risk it to a close no lower than 20.40, but study your fundamentals first.

  4. Marco Polo
    Apr 6 2008, 10:56:25 am

    SIGM is a top Gilder pick. George Gilder was an all-star technology picker in 1999, with an averaged return of about 250% for the year. His big problem was never selling the stocks when the market tanked. Long and short of it, he understands technology well but he’s no good with when to buy and sell. He’s still very optimistic about SIGM’s prospects. His portfolio is still down 90% or so from it’s top in 1999 and I should know…I was along for the ride as a newbie and followed his recommendations faithfully, both up and down!

  5. farley 5
    Apr 6 2008, 11:51:41 am

    SIGM is a real stinker. It is performing worse than the equal weighted S&P and getting worse, trading worse than Semiconductors and getting worse, and trading under the trendline. A look at the P&F chart clearly shows supply is in control. Stochastics 12,5,10 shows it is approaching overbought territory. “Story Newsletter writers” get hooked on the story and never check supply and demand. Why is that?

  6. Robert
    Apr 6 2008, 12:56:14 pm

    SIGM is just starting to form a bottoming pattern, or a consolidation before turning lower. It is not close to penetrating its down-trending trendline, not anywhere near its 50 or 200-day moving averages (both of which are showing no signs of leveling off), and any substantial volume is on the downside. It seems to still be in its distribution phase. There are MANY more stocks out there that are already trending higher and with very favorable charts. I would wait longer to see a well-confirmed upswing before buying, and I can’t wait for that to happen with all the ripe cherries out there just waiting to be picked.

  7. Mike
    Apr 6 2008, 07:39:04 pm

    Gumshoe, thanks for the great job & does anyone have any idea what the 3 stocks are Brian Hicks is teasing in his 20 Trillion Letter? He says these 3 companies are drilling for oil & gas in the Bakken Basin of N. Dakota & Montana.

  8. Bruce
    Apr 6 2008, 09:07:56 pm

    I’ve been part of Tobin Smith’s panel of experts for several years. In exchange for our expertise (I use the term advisedly), we enjoy subscriber benefits. This stock IS SIGM. It’s down 59% since 12/28/07. Will it go back up? I dunno, but Tobin makes a good argument that it should.

  9. Bruce
    Apr 6 2008, 09:12:56 pm

    For Mike’s benefit —
    I’ve identified five companies drilling in the Bakken Formation. They are EOG, WLL, BEXP, CLR and ABP. Also a trust (Canadian, I think) called Enerplus Resources Fund (ERF). I’m pretty sure that BEXP is one of Hicks’s three. Not sure about the others.

  10. Pete Ewing
    Apr 7 2008, 12:41:02 am

    I own Sigma. They are the dominant Blu Ray chip maker. Blue Ray sales are projected to increase from 500,000 units last year to 10 million in 2010 so even if Sigma loses some market share their growth should still be pretty substantial. With a forward PE of 9 and PEG ratio of .28 could be a lot of upside in this stock but may need some patience.

    Sigma said the downward adjustment to its 2008 forecast was due to an excess of inventory at its largest customer, Motorola. Sigma provides the chips that go into Internet Protocol TV set-top boxes for companies like Motorola. While end-demand for the boxes is not decreasing, Motorola will reduce its orders in the coming months to address the inventory problem. Motorola made up 28.0% of sales for Sigma Designs in the last two quarters. The company is projected to make up close to 5% of Sigma’s sales in the coming quarter. The expectation is that Motorola will return to normal ordering levels by the July quarter.

    Sigma earned $35.3 million in the quarter ending Feb. 2, as compared with $4.6 million in the same period a year prior. The earnings were based on sales of $76.4 million.

  11. Jeff
    Apr 7 2008, 05:54:21 am

    Blu-Ray in its current form is not going to be the big seller one might expect. A new standard is in the pipe that will make these old devices obsolete and non-compatible with future media.

  12. Junhao
    Apr 7 2008, 06:57:58 am

    Hi gumshoe

    Would you be able to find out what this 2 company this newletters is selling about ?? Thanks alot !



    My name is Charles Delvalle and I’m a market
    analyst with Investor’s Daily Edge, one of the fastest growing investment newsletters in the world. Investing has been my passion for more than ten years.

    [edited — thanks]

    Considering this small explorer had the leadership… the right plan… and a promising property, I decided to dig even deeper. That’s when I discovered that they already had nearly 73 million ounces of silver on the books, and are on schedule to reach – and, at the rate of their current discovery – even surpass their estimates of 100 million ounces of high grade silver!

    What’s more, every single time this company added to their resources, their stock price jumped by as much as 40%. And that’s exactly why I’m talking to you today.

    This company just released another resource estimate in September, showing an 86% INCREASE in silver reserves. And that estimate doesn’t even include the results of at least 30 other drill holes!

    Once they release their next estimate in January of 2008, expect big moves.

  13. Junhao
    Apr 7 2008, 07:02:40 am

    Hi Gumshoe ,

    this is the second newletter , just wonder how much you could dig further in to. Really look forward to your comments.



    Let Me Lead You to the Opportunities of a Lifetime

    The market that I have studied almost exclusively for 15 years… the one that has rewarded me with wealth beyond my dreams… is the market for precious metals, natural resources and energy.

    The ongoing bull market in commodities and natural resources will continue to be one of the greatest financial mega-trends of the coming decade and beyond.

    But I can already guess what you might be thinking… right now seems a little late to the party.

    Gold has cleared $1,000 an ounce… silver is over $20… platinum and copper are at all-time highs… crude oil is more than $100 a barrel.

    With most commodities near their record highs, how can I possibly say that NOW is the best time in a decade to get involved?

    Let me assure you, it is. Because I’m prepared to lead you to…

    The Most Undervalued Sector of
    The Natural Resources Market (By Far!)
    [edited — thanks for the submission!]

  14. Junhao
    Apr 7 2008, 07:03:55 am

    I have teamed up with Investor’s Daily Edge, and publisher MaryEllen Tribby to create an investment research service that shares all the secrets I have learned over a decade of successful natural resource investing.

    These strategies and ideas have helped me to generate thousands of pecent gains on my investments over the years.

    The service is called, Resource Windfall Speculator, and that’s exactly what you can expect in the years ahead… windfalls!

    Month after month, I will share with you opportunities to buy early stage positions in the world’s most promising exploration companies with just a click of the mouse or a quick phone call to your broker.

    Whether the resources are gold and silver… crude oil and natural gas… uranium… water… diamonds… copper, aluminum, zinc or silicon… if it can be explored for, you’ll be a player.

    In fact as soon as you get started, I recommend that you log in to the Resource Windfall Speculator website and begin reading the archives. Over the last six months I have recommended an entire portfolio of the most promising exploration companies.

    More than a dozen companies and all but a few are screaming buys at these prices. Do not delay a moment… there is gold in these names!

    But that’s not all. I have also prepared a special report for you…

    An Exploration Mutual Fund in a Single Stock

    I combed through hundreds of companies to find this jewel… a stock that is poised to deliver more than $10 for every $1 you invest today. This company was designed from the ground up by one of the masters of resource exploration.
    [edited — thanks for the submission]

  15. investorgirl
    Apr 7 2008, 10:49:01 am


  16. investorgirl
    Apr 7 2008, 10:50:12 am


  17. Seve
    Apr 7 2008, 11:25:24 am

    In my mind Sigma designs is one of the more interesting tech companies trading today. The stock has recently been under a short attack as these guys sniffed out that there was a small problem with the 4th quarter (the stock is on a January fiscal).

    The problem with the quarter was that their biggest customer had over-ordered chips in the previous quarter and so Q1 was going to be $14MM light—not that big of deal for a company that is going to do $300 to $350MM this year up more than 60% from last year.

    Sigma sells into the IPTV market which is one of the most explosive trends in technology today. Just about every telco in every country in the world is building out or intending to build out systems. Most countries don’t have cable head ends, so to deliver HDTV content they have to do it with IP.

    Currently Sigma’s chip is the only solution for the Microsoft TV platform and one of the strongest competitors in the Linux platform as well. Sigma’s system-on-a-chip (SOS) handles the decompression of the HD stream and also has the Digital rights management (DRM) built in. It operates seamlessly in any number of compression algorithms, which is no small task.

    The bear story (the stock has a monster short position) is that Broadcom will soon be on the market with a competitive offering and Sigma’s business will disappear. I don’t believe this as we have been hearing about the BRCM offering for a while and so far thy haven’t been able to get the chip working correctly. If everything went right for them they may have a chip out early next year, but it is not going to be easy for them to get designed into a box that is already working well. There are long lead times and if a deadline goes by in this business, they end up missing an entire year. Even still, if BRCM had a chip it would not put SIGM out of business, as most Telcos prefer two suppliers.

    Recently Ken Lowe the VP of Martketing was interviewed by Reuters and he actually said that $300MM in revs this year was doable and actually $350MM would not be that much of a stretch if they add 2 potential customers which they have yet to close, France Telecom and Reliance in India.

    The business model is fairly simple (they don’t manufacture) 50% gross margins, 20% operating costs and a 31% tax rate (This is new as this is the first year they will pay taxes.). At $350MM that’s $175MM less 20% gives you $140MM which after taxes if $98MM. There are 31MM shares but after the 5MM share buyback, there will be 26MM shares even with the new math you get $3.25 per share in earnings and with the stock at $24.50, that is around 7.5x right now. There is a serious disconnect going on here as this is on this years earnings. Also, even after the buyback they will have in excess of $3 to $5 per share in cash.

    The shorts got smoked on this one last year and I firmly believe they are going to get the hot poker again on this one. Broadcom or no Broadcom, the IP TV business is growing so fast that the market could easily accommodate 2 players. One other thing. Sigma has other legs to possibly grow on. Last year they bought a company that has Ultra Wideband technology which they are building into chips and there is interest from cell phone companies for specialized applications involving beaming video and music signals from cell phones to TVs.

  18. Steve Mitchel
    Apr 7 2008, 05:24:54 pm

    As an Alliance member, I can tell you this stock is on his open buy list since 1/29/07. he recommended selling 25-50% of your position in 12/3/07. Tobin’s 2/19/08 statement says he consider’s the share price a screaming buy under $45!
    His current take is the stock price suffered as Sigma guided for a 2008 that will be back-end laoded because Motorola ordered too many set-tops for AT&T in recent months.
    He feels this should correct itself in about a quarter, with yr. end guidance in the $300 – 350 million range.
    He feels Sigma is well positioned in not only the Blu-ray DVD market, but also IPTV.
    He currently recommends accumulating under $22.
    Good Luck to ALL!


  19. momz_pennyz
    Apr 8 2008, 12:24:24 am

    WOW!! That Junhao is one long winded full of vaseline and baby oil salesman! A carbon copy of the multitude of others out there selling a teaser to riches for a price. A price to people who got money to burn or just throw it on a hyped up hunch by a self proclamed big winner. Did ya think he would throw a bone out there with some meat on it at a share price we poor folks could afford? NOT! and then ramble on.
    I forgot to mention he wasn’t even on the subject at hand if my memory is right.

    Definatley not like the kind of home folk here at the stockGumshoe forum. Everyone here including the “G” man himself shares everything he can for free to those who have nothing and for those who have a few extra coins to share as well.
    I’m just a O’l stock trading ignorant woman who doesn’t have much and trying to get a little to share with my loved ones with the help of my son who knows a tad bit about stock.
    I apologize to all of you for breaking loose my feelings. I come here to relax and see what help you all have to offer, then HUGE sales thing just got to me.
    Happy reasurch and trading to all.

  20. Randy
    Apr 8 2008, 12:19:00 pm

    Wow, now we’ve got investment newsletter free advertising within the gumshoe responses. Hmmmm, very interesting…this was upposed to be a response to buying Sigma, where does the silver market fit in here?

  21. 12 |
    Apr 8 2008, 12:23:07 pm

    Hi folks — I’m going to go in and edit Junhao’s submissions, but they weren’t intended to be ads, they were teasers he wanted me (or others) to look into. I’m only editing them because I prefer not to have folks violate copyright by posting full letters or ads in this space. If you have a teaser to submit for “Gumshoe processing” please either email or post a link, post some “clues” or extracts, or email the full ad letter to ilovestockspam@gmail.com, please don’t post the full text of someone else’s stuff unless you have their permission. Thanks!

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