The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
When a stock goes up 188% in a year, many investors probably wish they had bought it. They also probably think it's too late to get in after such a huge surge.
But what should investors do when that same stock more than doubles again in the following six months?
That's exactly what has happened to the second best-performer in the S&P 1500 -- which includes the benchmark 500 [actually 501 due to Google's (GOOG) and (GOOGL) dual listings ] blue chips, 400 stocks in S&P's MidCap index and 600 in its SmallCap index -- so far in 2014.* (See note at the very end of column to find out which stock is the tops in the S&P 1500.)
Nope. It's a company that many of you have probably never heard of called GT Advanced Technologies (GTAT). Why is it doing so well? I can tell you with one word and one number.
GTAT makes equipment for the electronics industry as well as the solar sector. But the reason investors are so excited about its prospects stem from a deal it struck with Apple (AAPL) in November.
Apple and GTAT signed a multi-year supply agreement. GTAT will provide Apple with sapphire material to be used for screens on Apple's products. GTAT will own and operate furnaces and other equipment at an Apple plant in Arizona to produce the sapphire.
Sapphire glass is scratch-proof. Sapphire is already used to help protect the Touch ID fingerprint sensor on the iPhone 5S. It's also used as a cover for the camera sensor.
But following the news of the Apple deal, GTAT investors immediately jumped to the conclusion that GTAT's sapphire would also be used in the upcoming iPhone 6, new iterations of the iPad and possibly a long-rumored Apple smartwatch. Hence, the explosion in GTAT's stock price.
Raymond James analyst Pavel Molchanov said it's hard to figure out exactly how much of the stock's move was due to Apple as opposed to trends in the solar business -- which has enjoyed a resurgence on Wall Street lately. But he's learning toward Apple.
"The bulk of the stock's momentum pertains to sapphire - specifically, the supply deal with Apple. Both companies have been tight-lipped about the deal, so the market has very limited information about the underlying economics," he said. "Apple's 'seal of approval' has certainly been a very powerful catalyst."
So what now? Should investors consider chasing the stock at these lofty levels? As crazy as it sounds, it actually might make sense.
Yes, it's always risky to jump on board of a moving train. But it's worth noting that GTAT disclosed earlier this month in an SEC filing that it has opened a second sapphire plant for Apple in Massachusetts.
The iPhone 6 rumor mill is also operating at full capacity.
The latest scuttlebutt is that Apple will launch two versions of the iPhone 6 in September. Both should have larger screens than the current 4-inch model in order to make them more competitive with phones from Samsung.
Reports indicate that one will be 4.7 inches and another will be 5.5 inches. And the larger model is expected to have sapphire as opposed to more traditional glass.
Kevin Landis, chief investment officer with Firsthand funds, said that he fully expects Apple to order a lot of sapphire from GTAT. So despite the big pop already, the stock may have a lot more room to run. GTAT is the largest holding in his company's Firsthand Alternative Energy fund.
"When Apple goes in a certain direction, they go big. Most of what you're seeing in GTAT's stock is anticipation," he added. "Next year's estimates could go all over the place. It's hard to plug the word 'big' into your spreadsheet," he said.
With that in mind, Landis said 2015 earnings forecasts (currently 78 cents a share according to FactSet) could be way too low.
Even if you use the 78 cents number, shares are trading at 23.5 times 2015 earnings targets. That's not dirt cheap. But it's not so expensive to conjure up images of sock puppets and other bubbilicious froth from 1999 and early 2000.
Still, Molchanov is taking a wait-and-see approach with the stock. He said that besides its valuation, his main concern is that GTAT may now have too much of its business concentrated with Apple. And it's not entirely clear exactly how much sapphire GTAT will be supplying and for what products.
There are also a lot of skeptics betting on a decline. More than 30% of GTAT's available shares were held by short sellers as of mid-June. That's a significantly high amount.
That doesn't worry Landis though. He notes that GTAT, which is now worth $2.5 billion, has the potential to wind up with a much larger market value. He points to Corning (GLW), the maker of Gorilla Glass, a product also popular with gadget makers for LED screens.
Writing a lot about glass in this column. Do I feel a song coming along? Why yes I do! Take it away, Debbie Harry!
Corning's market value is more than $28 billion. Landis concedes that GTAT shouldn't be worth that much.
He also admits that Corning is more than its Gorilla Glass unit. It also has a fiber-optics business.
(Ironically, that unit was the reason why Corning was a hot stock during the 2000 tech bubble. Glass was an afterthought.)
So investors obviously need to be careful with GTAT. You can't just casually dismiss concerns about its stock price.
But investors also should look at companies like Apple, Netflix and Amazon (AMZN). The mistake that is often made with a momentum stock is to declare that it must go down just because it went up a lot.
If more companies adopt sapphire and GTAT's earnings increase dramatically as a result, then this could be just the beginning of a prolonged move higher for the stock.
"This is typical with tech stocks. You get in after a big run and feel that you may be too late to the party," Landis said. "But it turns out that the party is better and going on longer than you thought."
So for anyone looking to buy GTAT now, here's hoping that Apple doesn't turn out the lights anytime soon.
*Congratulations if you are still here. The top performer in the S&P 500 year-to-date is an oil driller called Pioneer Energy Resources (PES). It has a lot of exposure to the shale gas boom in the U.S. Shares are up 116% compared to GTAT's 113% rise.
Reader Comment of the Week! Since this "reward" is a mere shout-out and not a more substantial prize of actual monetary value, I don't play by radio contest rules. Employees of CNNMoney -- and any other Time Warner (TWX) properties for that matter -- are eligible to win.
I had a lot of fun joking about soccer's Hannibal Lecter this week. Uruguay's World Cup chances may have taken a hit now that star player Luis Suarez is getting more attention for his chompers than his feet. (I don't get it. My wife and I went to Punta del Este a few years ago and found Uruguay to be such a calm, peaceful place.)
But my colleague Charles Riley in Hong Kong had a nice one-liner about where Suarez may land next.
Ha! If true, then members of the Navy, Army, Holy Cross and other Patriot League teams better watch their backs! And their shoulders.
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