Shares of USA Technologies (USAT) jumped 20% Thursday after it released its second quarter earnings report. The company booked a gain of 1 cent per share instead of an expected loss of the same magnitude, which triggered an immediate buying frenzy in the stock. Since then it has pulled back a bit, but is still sitting more than 10% higher than it was a week ago.

That type of outperformance is what we had in mind when we first recommended USAT to our readers four months ago.

However, USAT got lost in the post-election stock market rally that focused primarily on large-cap companies likely to benefit from Trump’s ambitious agenda to spur economic growth. For that reason, last week’s share price bump only got us back near our entry point, so our original near-term target price of $6.15 is still in play and represents a 35% gain over where it opened this morning.

We reiterate our buy recommendation for USAT up to $5.40.

Earnings Report a No-Go for Organovo

Earnings season is going well for our portfolio holdings, as last week most of them either met or beat analyst estimates and have seen their shares rise as a result, such as USAT described above. There was one notable miss however, but I don’t think it’s a red flag, much less a disaster. Despite better-than-predicated earnings, shares of Organovo (NSDQ: ONVO) took a big dip last week after it missed analyst’s revenue prediction by a wide margin. The biologic 3D printer reported a net loss of $9.6 million, or 9 cents per share, in its fiscal third quarter. That’s a penny better than analysts expected and a big improvement over the 11 cent loss in the same period last year. That was the good news.

Total revenue also saw strong growth in the quarter, rising 251% year-over-year to $1.2 million. Product and service revenue, consisting mainly of sales of Organovo’s artificial human tissues, was up 139% to $700,000, and six new customers were added to the books in the quarter. Collaboration and grant revenue was up to $400,000 thanks mostly to a milestone payment from Merck. The problem is that analysts had predicted revenue of $1.4 million, a target the company missed after some customers requested additional validation studies before purchasing the company’s artificial tissues.

Not only did those additional studies – which the company believes it will successfully complete by the next fiscal year – cause a quarterly miss, they also forced Organovo to reevaluate its full-year revenue guidance. When it last issued a full-year projection back in November, it predicted fiscal 2017 revenue of between $4.5 million and $6.2 million. But now that some revenue isn’t going to be recognized until the next fiscal year, it expects revenue to fall between $3.7 million to $4.5 million, essentially making the old bottom-end guidance the new top-end. Investors obviously weren’t happy about that.

I’m not worried about this miss, though. Organovo’s liver and kidney tissue products are still relatively new to market, so it’s not surprising that potential new customers need rigorous research to validate using the products. This also aren’t products that you can pick up at the corner scientific supply store, so once the additional studies are done the orders should follow.

Organovo has also improved its cash position, with working capital of $67.5 million on its books compared to $65.2 million a year ago. It only burned $7.7 million in the quarter and while the additional research will likely raise costs in the coming quarters, Organovo can afford it. Really, this miss is more of a delay than a problem, so you should take advantage of the drop in the share price to pick up more.

Organovo is a buy up to $6.

– Benjamin Shepherd

Take a LEAP on Texas Instruments

Shares of Texas Instruments (NSDQ: TXN), a leading producer of a wide variety of semiconductor and analog chips, have recently fallen below our $78 buy limit offering another chance to buy. As a bonus, I am also adding a LEAP recommendation for the stock. In my recent article on semiconductor testing equipment manufacturer Teradyne I noted that the company’s ongoing excellent results and optimistic outlook for the automotive market offer clues as to how well the whole chip sector is performing. This confirms both the usefulness of Teradyne’s business book as a bellwether, but also reinforces T.I.’s positive outlook, as I detail below.

T.I. is seeing rapid growth of its automotive and industrial sectors that together have become the dominant portion of its total business, rising from 44% to 51% over the past year. What sets T.I. apart from its competition is the reliable execution of its long term business plan, which is focused on efficiency and attention to detail. Its success is clear; as the company continues to benefit from the combination of falling manufacturing costs, rising demand for its products, and from its aggressive use of the 300 mm wafer which allows more circuits in a smaller area, thus cutting costs and maximizing margins.

Because T.I. owns its mostly paid-for manufacturing plants, its costs are lower than those of its competitors, who often use contract labor or lease space for production. Even more important, T.I. plans for factory expansion several years in advance based on its analysis of future trends, which means that the next decade’s factories and facilities are at some point of the design or build-out stage now, and those costs are being factored into the entire business plan. This long-term planning, and its flawless execution, give T.I. a huge advantage over its competition, which has been slow to move toward the 300 mm wafer size. In a sense, T.I.’s efficiency acts as a multiplier for its revenues and earnings, especially when placed in the context of the company’s recent 11% year-over-year order growth, which for a company this size is astronomical.

The bottom line is that Texas Instruments is a lean and mean free-cash-flow generating machine with a growing book of business in a sector that remains poised for growth over the next 12 to 24 months.

Buy Texas Instruments up to $78.

For a more leveraged play on T.I., you can buy the Texas Instruments January 19, 2018 LEAP 77.50 Call option (TXN_180119C000775000) up to $7.

– Joe Duarte

I have a position in TXN.