By Melvin Pasternak
Throw away your wallet. Toss out all those heavy, antiquated coins. Burn your checkbook. Cut up your credit cards.
But make sure you keep your mobile phone.
It's how you soon may pay for almost everything you buy using a method some call the "mobile wallet," and others term "mobile money," but is most commonly known as mobile payment solutions.
Mobile payment transactions are exploding. According to a report by Gartner Research, these types of payments totaled roughly $171.5 billion in 2012, a 62% rise from $105.9 billion in 2011. In 2012, roughly 212 million people worldwide made mobile payments, up 32% from nearly 160 million users in 2011.
More importantly, Gartner expects mobile transactions will grow at an average pace of 42% a year. By 2016, the firm forecasts the mobile transaction market will be worth $617 billion with 448 million global users.
This amazing growth outlook means tremendous opportunity for mobile payment service providers. Traders tapping into the trend now could also make stellar returns.
Of the publicly traded mobile payment solutions companies, the one I like best is NXP Semiconductors
) based on its solid chart and increasing revenue and profits.
The hardware manufacturer has a specialized chip that enables mobile devices to communicate with each other in a close range, allowing the secure transmission of payment information. This near-field communication (NFC) chip should be a strong growth catalyst.
As my colleague Andy Obermueller pointed out in a recent article
, sales of NXP's NFC chips grew 19% in 2011 and 41% in 2012. Merrill Lynch expects the company's chip sales will increase an additional 30% this year. By 2015, NFC chip sales are expected to account for 35% of the company's total revenue.
It's clear that as mobile payment technology becomes increasingly commonplace, demand for NXP's chips could surge.
From a technical perspective, NXPI's chart is bullish.
Rising off a low of $14.27 in December 2011, shares formed a major uptrend, rising almost 200% to date.
Early this year, the stock hit a multi-year high at $32.99, but encountered resistance at this level. By April, shares had dipped to $24.66, a support level marked by the intersection of the major uptrend line.
Holding support, NXPI clawed its way back. By July, shares once again hovered near $32.99 resistance. In August, the stock surged through this resistance level, bullishly breaking a long-term ascending triangle.
NXPI went on to hit a high of $39.46, but could not move further. From late August through most of September, shares traded in a narrow range between support near $36 and resistance at $39.46.
However, following recently reported upbeat third-quarter results, shares pushed past $39.46 resistance. The stock is now trading near its all-time high at just over $42. With no overhead resistance in sight, shares could soar. Some analysts have a price target as high as $60. At current levels, this target presents traders with 40%-plus potential returns.
The bullish technical outlook is supported by strong fundamentals.
Driven by growth in secure identification products, fourth-quarter revenue is expected to increase 13% from the same period last year, to $1.27 billion. For the full 2013 year, analysts expect increased chip demand will push sales 10% higher to $4.79 billion.
The earnings outlook is similar. Analysts expect fourth-quarter earnings will nearly double to $0.95 per share from $0.50 in the comparable year-earlier quarter. For the full 2013 year, analysts project earnings will increase 90%, to $3.23 a share.
In addition to a strong growth outlook, the company appears attractively valued based on its five-year expected PEG ratio (price-to-earnings ratio divided by earnings growth rate) of 0.4. Typically, a PEG of 1 or less shows value.
Risks to consider: While mobile payment may be where many financial transactions are headed, adoption could be slower than anticipated. Demand for hardware enabling mobile payment data communication could slow, negatively affecting the company's growth outlook. However, NXPI is diversified, and innovative technology solutions should drive future growth.
Action to take:
-- Buy NXPI at the market price
-- Set stop-loss at $36.01, slightly below important support
-- Set initial price target at $59.99 for a potential 42% gain by late 2014
Melvin Pasternak does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.
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