Blog Post

Two More Things in CREE's Favor

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Following a rocky first half of 2008, LED maker Cree is starting to see more news in its favor. The stock rallied 12 percent on Friday, well above the 3.4 percent rise in the Nasdaq. It closed the week at $28.75, up 67 percent over the last six weeks.

After reaching a 2008 high around 35 in late February, Cree shares gave up nearly half of their value over the next five months. It has since been recovering as things began to go its way. First, it got some terrific publicity from the Beijing Olympics, with its XLamp LEDs used first in the Water Cube and then in the Bird’s Nest. Then, China came through with infrastructure deals that added even more to Cree”s revenue.

On Friday, Cree received two more bits of good news. First, Oppenheimer analyst Yair Reiner upped the firm’s rating on CREE to Outperform from Perform. The key reason is a the company’s LEDs are finally moving beyond display screens to general lighting.

After years of waiting and hoping, LEDs are beginning to gain traction in general lighting applications, and we believe Cree has positioned itself as a major enabler and beneficiary of this transformation. Further, thanks to the acquisition of COTCO, Cree should benefit from strong growth in Chinese LED-powered outdoor displays.

Also Friday, Bespoke Investment Group noted that CREE was among the beneficiaries of the SEC’s better-late-than-never crackdown on naked short selling (shorting a stock without borrowing an actual one). CREE has spent nearly a year on the so-called Reg SHO list, which has become a who’s who of victims of naked shorting. As Bespoke said on its blog:

One of the tenets of the new rules was that brokers would be forced to close out trades where a counterparty failed to deliver securities on time … It appears as though [the SEC’s] recent actions, while not addressing the main issues that needed to be addressed, have had at least some impact.

Cree shares have been a favorite among some short investors. Its short interest (the number of borrowed shares sold, which unlike naked shorting is perfectly legal) stood at 25 million in late August, equal to 25 days of average daily volume.

That’s a lot of bearish money betting against Cree. For now, at least, the bulls have regained the upper hand.