Contrarian tech buys: Lam Research and Infosys

Out of favor with analysts and traders, these 2 companies could deserve another look.

By TheStockAdvisors Jan 22, 2013 12:44PM
Image Circuit Board copyright Datacraft Co Ltd, imagenavi, Getty ImagesBy Bernie Schaeffer, Schaeffer's Investment Research

Our stock picks are based on a trading strategy known as "expectational analysis" which combines fundamental, technical and contrarian-based sentiment metrics.

Based on this approach, I initiated a long position in two technology sector stocks: semiconductor equipment maker Lam Research (LRCX) and Infosys Ltd. (INFY), which is involved in systems integration, enterprise solutions and outsourcing services.

Lam Research has been an outperformer lately, and its stock is up 10% so far in 2013 -- 18% in the past three months. Short interest, as a percentage of the stock's float, is currently at 4.5%. Should the equity continue to climb, we could see a short-covering rally.

There is a lot of skepticism regarding the stock, as the Schaeffer's put to call open interest, which measures open interest on the front three months of an optionable equity, currently stands at 1.51. This also ranks in the 91st percentile of all ratios in the past 52-weeks. An unwinding of these bearish bets could act as a tailwind.

Price action for Infosys has been strong so far over the past year as the stock is up over 20%. It gapped up on better-than-expected earnings and is trading around the $50 level. This round number level could act as short-term support.

Short interest, as a percentage of the stock's float, is nearly 6%. This has increased over the past two weeks, and could lead to a short-covering rally.

Analysts remain skeptical about this company as well, as there are currently two buys, 12 holds, and two sell ratings. Any upgrades in the future could help to drive the shares higher.

After gapping up higher on a strong earnings report, we could see revisions in the future, which could also act as a tailwind.

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