Why Cree Inc. Shares Lit Up This Morning

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cree  (NASDAQ: CREE  ) climbed 2.5% in pre-market trading Wednesday after Needham upgraded the LED products specialist from hold to buy.

So what: Along with the upgrade, analyst Edwin Mok planted a price target of $64 on the stock, representing about 15% worth of upside to yesterday's close. So while momentum traders might be turned off by Cree's share-price slump in recent months, Mok's call could reflect a strengthening sense on Wall Street that the company's growth prospects are becoming too cheap to pass up.

Now what: According to Needham, Cree's risk to reward trade-off is rather attractive at this point. "Based on strengthened demand for LED lighting, we believe CREE will deliver strong revenue and earnings growth in the coming quarters," said Mok. "In the near term, we expect strong guidance for the June quarter to push the stock price higher. Longer term, we believe LED lighting is entering a phase of rapid adoption in multiple markets worldwide, and in our view CREE remains the best idea for investors to leverage this trend." More important, with Cree boasting a rock-solid balance sheet and its shares flirting with its 52-week lows, the downside seems limited enough to bet on that bullishness.

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  • Report this Comment On April 25, 2014, at 8:05 PM, wvusafety wrote:

    I have noticed repeatedly that when an analyst recommends a Strong Buy right before earnings the stock will slide. I bought 100 shares around 2pm on earnings date then realized that there was an upgrade a few days earlier. I immediately went and sold the stake; sure enough it tanked after the bell! I waited until today and re-established the position. This 'theory' of mine has shown true more often than not. I wonder how many shares the analyst sold at 3:59 pm!?

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