Buying the component plays of hot products almost always ends very quickly, and badly.
I have been really burned thinking hot components were great growth stories. They are great stories – until they lose a client.
The last one to burn me and swear me off component plays was Synaptics, makers of Apple’s click wheel (not quite sure if they still are). Great products, but heavily reliant on Apple.
One burned out component play that was a Wall Street darling that I have followed and always avoided is Portal Player. Today Portal Player was purchased by Nvidia at a 30 plus percent discount from their HOT HOT IPO of last year.
Who wins? Likely Nvidia. I agree with the Forbes take, but I only am looking at this in a cursory and cynical manner.
The insiders and bankers leaked this merger, but they are human and it happens 99 percent of the time. Trader Mike calls it and the footprints of the cheaters should be easy to track. I think the SEC really cares about this stuff, mainly because it is way easy to catch.
Hot company, making chips for Apple’s iPod. Wall Street somehow floated this deal to the public by perfectly executing one of their ponzi schemes – tight float, good PR. Portal Player had one customer at the time of their IPO. They were a component player and Apple has a history of changing vendors. This one was a matter of time only. Today – the bomb was dropped on the public.
The cycles on component plays are so hard to game accurately that if you have a small portfolio, focus on true growth stocks (market leaders, not companies that rely on the business of market leaders) and buying great brands at big discounts. Tune out everything else.