Potential chip industry disruptor comes with a speculative warning

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Hi Lou,

Any thoughts on POET Technologies? It sold its solar assets last year and is now a pure R&D play with a potentially game changing semiconductor technology. It has been trending well and looks like it might be breaking out.

Thanks,

Tim in Toronto

Hey Tim,

Thanks for the assignment.

This will be the first time that I conduct an analysis of POET Technologies Inc. The company has hung its hat on Planar Opto-Electronic Technology, hence the acronym POET. The technology is said to offer higher speed and lower costs in the design and manufacture of computer chips. Whenever you offer the possibility of a better approach to original equipment manufacturers you will at least get their attention. In technology the day is won by companies that best manage to meet the twin goals of effectiveness and efficiency and faster-cheaper will get you a good way down that road.

The rub that I see with the stock is that it only has a $101.01-million market capitalization. When I see narrow shoulders trying to shift an entire industry it always gives me pause to reflect on all the world-beating stories that I have evaluated over the year. I'm not saying that you should dismiss the case out of hand but that you should be aware of the risks associated with any David vs.Goliath scenarios.

An examination of the charts will support my thinking on PTK.

The three-year chart demonstrates the advance that started in November of 2013 when the shares moved off of support at $0.40 and in the same month broke above both the 50- and 200-day moving average with conviction. In December a golden cross surfaced as the stock climbed above resistance at $0.60 on its way to a 52-week high at $0.85.

The six-month chart illustrates the buy signals generated by the MACD and the RSI first in November of 2013 and then again in January of 2014. Both moves generated attractive returns on a percentage basis. Currently the shares are pulling back from the highs and may have to retest the thin ledge of support at $0.70.

From the research conducted on your behalf it is evident that PTK is a speculative investment. They have what they say is a disruptive technology but revenue is slight and losses are still being reported. With the pullback from the highs it would be prudent to see if $0.70 holds before committing capital at this time.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.