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Although I am a radical Apple enthusiast, as a consumer and as an investor, it is increasingly difficult to gauge how the lemmings and other geniuses on Wall Street measure the success of a company.

The Street does, however, reward growth – and the best thing for investors to do is to shun picking the winners and losers in each sector. The best thing to do is find the company growing the fastest and profiting the most from the growth in the sector.

In personal mobile devices the winner is Sandisk (SNDK), the world leader in NAND flash memory technology. In LED products, it is Cree (CREE), the world leader in LED technology.

Sandisk’s acceleration

In 2013, according to market research firm IDC, the sale of personal devices – smartphones and tablets – will account for 57% of all tech industry growth.  Smartphones and tablets, as well as growing number of laptops (such as the one I am writing this column on) use NAND flash memory. Sandisk is the world leader in this technology and business is accelerating. Sandisk generates revenues through product sales but also collects royalties form the licensing of patents and technology to other players in the space. It is well-managed and prudent with capital; it has a joint venture with Toshiba in Japan to mitigate the cost of building next-generation chip plants.

Sandisk sales in the second quarter grew 10% over the first quarter – simply incredible growth. Earnings come out Wednesday, Oct. 16 after the market closes. I expect Sandisk to beat expectations and to stick with or increase its forecast for the fourth quarter and the first half of 2014. The stock rose for the better part of this year, has stalled and I expect the next leg up to begin as soon as the mess in D.C. is resolved.

Cree and the magic price point

Cree is the granddaddy and market leader in LED technology and is making great strides in pushing its brand down to retail with LED bulbs selling for less than $10, a magical price point among consumers.

Cree’s revenues grew almost 8% in the second quarter compared to the first quarter – that’s right, quarter over quarter – and business is booming. Go to a Home Depot (HD) or Lowe’s (LOW) and you will see CREE end caps or tables pushing their products, a marketing campaign the company afford to push, given its growth. Some analysts do not like the expense of this program as it lowered margins, but Cree has the advantage of high margins compared to many competitors since they collect royalties on patents that are almost pure profit.

Cree stock sold off when it disappointed on margins, giving investors a buying opportunity that is not over. The stock has reclaimed almost all the ground it has lost and is ready for the next move up, which I believe will come when the company announces earnings on Oct. 22. I expect profits and margins to be at the low end of expectations but I expect sales to be terrific and their going forward forecast to be equally bullish.

The bottom line: play the trend and the sector, not an individual product or company and play growth. That is the one thing Wall Street always returns to in a sluggish economy.

 

Michael Shulman does not hold any positions in any company mentioned in this article.

 

 

 

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