Aixtron AG (AIXG – Nasdaq)

Dear Bottarelli Research Member,

Welcome back! To kick off today’s alert, I’d like to address our protective put position on the DJX that we entered on November 19^th. I hope that you fully capitalized on the movements of these DJX December 130 Puts (DJW XZ), because they did a fine job of protecting our small-cap positions during the recent market volatility. Even factoring in the Dow’s 300-point up-move on Wednesday, these puts gained as much as 40% from our $3.00 entry price. This means that you should have been taking your “protective put” profits off the table prior to the big Dow rally.

Now, since the markets continue to be volatile, I may go ahead and issue a similar play in the month of December. In fact, if the Fed (which I feel has been very ineffective) does not lower rates by at least 50 basis point at their December 11^th meeting, that might be the time to enter another protective put position on the DJX. More on this strategy in the coming weeks.

In the meantime, today’s newest small-cap pick is an exciting company that specializes in electronic applications for silicon and organic semiconductor materials. They’re the global leader in offering the building components (or guts) of fiber optic communication systems, such as wireless and mobile telephony applications, optical and electronic storage devices, and computing systems. Considering the rate at which technologies like solar, cell phones, TVs, and even automobiles are changing, it’s clear that this company will have a loaded order backlog well into 2010.

In fact, the more I studied this company, the more I realized that what they offer is truly a global investment opportunity – one that capitalizes on industrial transformations taking place in Taiwan, China, and Korea (which is a country that I consider the “New Silicon Valley”). They’re are also involved in nanotechnology using carbon nanotubes and silicon and organic semiconductors, which will be in high demand as solar technology continues to advance.

Add it all up, and this is a company that’ll fit into our small-cap portfolio like a glove. Their products, to my eye, are the heartbeat of the ever-evolving technology revaluation, and we can own shares of this $12.50 stock as it transforms right before our eyes.

The company is called Aixtron AG (AIXG – NASDAQ) and I’d like to buy shares anywhere under $13.00. I’ll hand things over to Bryan for his full write-up in just a moment, but first I have some updates and portfolio cleaning to address – starting with some new sell recommendations.

SELL RECOMMENDATIONS

Parker Drilling (PKD – NYSE): By now, I would have thought that the strength in PKD’s Quail Tool segment, in addition to their new drilling contracts, would spark an upside rally, but this just has not materialized. We’ve given this one plenty of time to turn the corner with no results, so our investment dollars can certainly be better utilized in other picks. Sell.

Cereplast (CERP.OB): As you know, CERP has gone nowhere despite its tremendous promise, so let’s close this one out and move on. Similar to PKD, your investment dollars can be better used in other picks. Sell.

UPDATES

Echelon (ELON – NASDAQ): Everyone is talking about energy conservation. Since companies around the globe are scrambling to figure out just how to lower their bills and conserve energy, I have no doubt that ELON is going to benefit in 2008. It appears like the stock has now found its floor, and picking up shares at these levels is nothing short of a Wall Street gift.

SiRF Technology Holdings (SIRF – NASDAQ): As you probably know, SIRF has been holding up extremely well throughout the market turbulence. Since they are the premier maker of GPS chips, they should be viewed as the company to own over names like Garmin or Navteq. Without question, I expect a lot more upside leading into 2008.

Origin Agritech Limited (SEED – NASDAQ): I admit, this one is a head-scratcher. There is a global push for agricultural products, and SEED is one of the only seed companies overseas. Therefore, the stock should definitely be showing signs of life. Yet it’s not. I’d like to give this one a little more time to grow, but at the same time, I’m also shortening the leash.

Solarfun Power Holdings (SOLF – NASDAQ): Great upside move on Thursday! The company was up 32% on Thursday and 17% today (Friday), putting the stock at a 49.70% gain in our small-cap portfolio. These gains are coming thanks to a definitive contract for Hoku’s delivery of polysilicon over an eight-year period. This could be the start of an extended upside run, so let’s continue to hold the remainder of our shares for more gains! If you recall, we already took profits on some of our position.

ISIS Pharmaceuticals (ISIS – NASDAQ): A new 52-week high! You can always identify a strong stock when they take extreme market turbulence in stride, and that’s exactly what we have with ISIS. With everything they have to offer in the biopharma arena, I have to think that they’ll soon be a buy-out target of a major drug company. In fact, they just announced another new alliance with Excaliard Pharmaceuticals to discover and develop antisense drugs for the local treatment of fibrotic diseases. This baby is hitting on all cylinders!

Basin Water (BWTR – NASDAQ): It’s very troubling to me that a stock that was showing us such strong returns could fall entirely because of poor management. As a quick review, we originally entered BWTR on July 16^th for $9.78 and watched it quickly move up to $13.42. Luckily, we took some of our profits off the table at these levels, which left us holding the second half of our position. In the weeks that followed, BWTR dropped precipitously due to unfathomable management errors, which caused poor earnings results. As a result, the stock moved from $13.00 down to $5.66 in 11 trading days. Currently trading for $7.16, the stock has recovered somewhat, but now the investing thesis has gone from a growth story to a turnaround story. Truthfully, I think the selling is way over done, and their new alliance with Rohm and Haas Company could be the answer to their troubles. After all, the water industry is one of the places that we all want to be, and BWTR had the monkey by the tail until recently.So here’s what I’d like to do. The more I pour over this company, the more I think that we should carefully add a small amount of shares to our ledger at these depressed levels. I think that you can make a quick hit by buying here, as Wall Street has made a hasty judgment and sold off the stock too aggressively. I’ve already heard of some big management changes in the works, and that could spark renewed buying interest. When you take a step back and think about it, the combination of water and technology will be a huge investment theme for 2008, and I think BWTR will recover. Let’s take a nibble here and add to our position.

General Moly (GMO – AMEX): Another new 52-week high! GMO has been in rally mode ever since ArcelorMittal announced that they’ll buy 8.3 million shares of the company through a private deal. ArcelorMittal, which is the world’s largest producer of steel, now owns 12.6% of GMO. Could this be the first step to an all-out takeover bid? With GMO currently up a whopping 399.56% in our small-cap portfolio, I sure want to stick around and find out!

Polymet Mining (PLM – AMEX) & Metalline Mining (MMG – AMEX): In addition to GMO, each of these resource stocks are rock solid, so please use any weakness to add to your position. Looking first at PLM, they’re moving into the final stages of (what could possibly be) the world’s largest copper-nickel ore-body. It’s located right here in the USA and they’re working towards production next year. This should be huge. In terms of MMG, nobody is talking about the amount of silver they have uncovered. We already know that they’re one of the lowest cost producers of zinc in the entire world, but their silver discoveries are not being reflected in their stock price. When the investment world wakes and realizes what you already know, I want to be sure that you profit off the tremendous upside move that’ll occur in MMG. I have been expressing my bullishness on silver for months, and MMG is one of the most explosive silver plays your money can buy!

Graham (GHM – AMEX): And yet another new 52-week high! Just like ISIS, GHM is hitting on all cylinders. On Friday, October 26^th, the company reported a soaring fiscal second-quarter profit of $29.6 million ($1.10 per share). A year ago, GHM made just $0.14 cents a share on revenue of $15.9 million. This is a massive year-over-year increase. On this same day, they also announced a 5:4 stock split payable on January 2^nd, 2008. And not to be outdone, they also announced two new orders on Tuesday, November 6^th, with a combined value of $7 million. The first order is for ejector system components for a U.S. Gulf Coast oil refinery. The second order is for two surface condenser systems for a Russian oil refinery. Throw it all together, and GHM hit a high of $70.90 this week, good for a 69.6% gain from our initial entry price. If you haven’t already done so, lock in half of your gains now!

Looking ahead, I’d like you to keep some powder dry, because leading into December (which is the second best month of the year to be long small-cap stocks) we’re going to take full advantage of the very best small-cap opportunities on the market. I’m already working on some names that should hand us exceptional returns in 2008, and I want you to be ready to fully capitalize on these amazing stocks. Your first one is outlined below!

Sincerely,

“A More Promising Short To Medium Term Outlook
Than I Can Recall Over The Last Five Years”

- Paul Hyland, AIXG Chief Executive Officer

I’d like to begin today’s alert by discussing the Russell 2000 Small Cap Index. As you can see from the chart below, the RUT hit a new 52-week low of 734.45 on November 27^th. But after hitting this low, the small-cap index has subsequently bounced hard off these levels.

Leading into December, which is historically the second-best month to be long small-cap stocks, I see this is a great buying opportunity. After all, with the seasonality of a strong December combined with the bullish event known as the “January Effect,” you could enjoy some very strong returns over the next two months.

Note: The January Effect is known as the historical increase in stock prices that typically occurs in the first month of the new year. The rally is generally attributed to investors buying stocks that have dropped in price due to tax-loss selling (which is used to offset any capital gains). Due to reduced trading volumes on small-cap stocks, the January Effect tends to affect small-cap stocks more so than mid- or large-cap stocks.

So what I’m saying is this: If you have been considering adding to any of your small-cap positions, or if you missed buying a position in one of the stocks that we’ve recommended in the past, now looks like the ideal time to make a move. So, please take full advantage.

Having said that, let’s move into today’s newest pick on Aixtron AG (AIXG – NASDAQ).

In my view, Aixtron AG (AIXG – NASDAQ) is a company that combines the investing thesis of two of our successful small-cap picks: SiRF Technology Holdings (SIRF – NASDAQ) and Graham (GHM – AMEX).

On one hand, SIRF is a company that’s the leading maker of GPS navigation chips, which are booming in popularity. Since their chips are essential for GPS devices to operate, demand from companies like Garmin and Navteq should continue to fuel SIRF’s upward growth.

On the second hand, GHM is a company that manufactures and sells vacuum and heat transfer equipment. Now, I’m sure that the business category of vacuum equipment doesn’t exactly light your world on fire, but in terms of a successful investment play, GHM is one of the best stocks your investment dollars can buy.

After all, despite their drab market niche, their year-over-year quarterly earnings have grown 138.20%, which amounts to an amazing quarterly revenue growth of 36.80%. With these incredible growth statistics, it’s easy to understand why the stock has gained 360% over the last 52 weeks. Since entering GHM on October 1^st for $41.80, the stock has traded as high as $70.90, good for a 69% gainer.

Now, I bring up SIRF and GHM because today pick, Aixtron AG (AIXG – NASDAQ),combines each of these two successful investment elements into the same powerful little company. Case in point, AIXG is the world’s leading manufacturer of MOCVD equipment, which is a fancy way of saying that their equipment is used by the semiconductor industry.

More specifically, their electronic and opto-electronic applications are based on compound, silicon, and organic semiconductor materials used in fiber optic communication systems, wireless and mobile telephony, optical storage devices, and lighting displays. And as you can imagine, the demand for the components that allow these devices to function is off the charts. For example, AIXG’s technology is used by a wide range of customers worldwide – including customers in Germany, the United States, the United Kingdom, Sweden, Japan, South Korea, China, Taiwan, India, Israel, Poland, and Russia.

Without boring you with the technical details of how their chips work, Aixtron AG basically has their business segmented into three primary groupings:

1. Compound Semiconductors
2. Silicon Semiconductors
3. Organic Semiconductors

Here is a breakdown of the uses for each of these three markets:

Applications for Compound Semiconductors

• Light Emitting Diodes (LEDs) for lighting, signaling, and jumbo, outdoor screens
• Optoelectronic devices such as photo diodes, lasers, or modulators
• Laser devices for consumer electronics such as compact discs (CDs), digital versatile discs (DVDs), and high-definition DVD (HD DVD) such as Blu-Ray
• Solar cell technology

Applications for Silicon Semiconductors

• Complementary Metal-Oxide Semiconductors (CMOS) and Integrated Circuits (ICs)
• Metal and oxide films for capacitor structures as used in Dynamic Random Access Memory (DRAM)
• Silicon Germanium (SiGe) and Strained Silicon epitaxial layers for high-performance CMOS logic ICs

Applications for Organic Semiconductors

• Organic LEDs (OLEDs) for flat panel displays
• Organic LEDs for solid state lighting and signage applications
• Electronic semiconductor structures for Radio Frequency Identification Devices (RFID)

So in a way, I’m comparing AIXG to SIRF because what they manufacture is essential to the operation of some of today’s more popular technology. And on the same hand, I’m also comparing AIXG to GHM because the explanation of their technology, quite frankly, is rather boring. All you really need to know is that their components are essential for the operation of today’s sought-after technologies, and demand is really beginning to soar. For instance, what should really excite you about AIXG is their recent financial numbers, because it looks like AIXG is on the verge of a tremendous breakout. Consider this…

For the nine months ended September 30^th 2007, AIXG reported a 48% year-over-year increase in total revenues. This allowed them to raise their full year 2007 revenue guidance – something that Wall Street loves to hear. On this announcement, shares of AIXG blasted up to a new 52-week high, but since hitting that high they’ve come back down a little. This offers us a fantastic entry price leading into December because the gains are far from over.

According to Chief Executive Officer Paul Hyland, Q3 was the sixth consecutive quarter that AIXG received over EUR 40 million of system orders. Q3 also ranked as the highest ever order intake quarter the company has ever had. Very bullish.

What’s even more exciting is the fact that their Q3 revenue record only reflected the first-generation of LED backlighting products on the market. This means that AIXG is still in the early stages of introducing this technology to the market. In fact, their initial commercial products were predominantly small- and medium-sized backlighting units utilizing white LEDs. Looking forward, AIXG plans to launch a full line of RGB backlighting technology, and this could continue to grow their quarterly revenues at a record pace.

Think of it like this. When Apple Computer introduced their first generation iPod, it sparked a huge rush of initial sales. Then, expanding on this successful launch, Apple extended the iPod franchise by offering the iPod Mini, iPod Shuffle, iPod Nano, iPod Video, and now the iPod Touch. Sales soared.

Applying this Apple iPod analogy to AIXG, please understand that AIXG is still in the beginning stages of launching their first ever iPod. The initial sales are very good, but they haven’t even began to scratch the surface of their full impact.

That’s why Paul Hyland was quoted as saying, “These factors, along with a greater level of activity in LED automotive applications, leave us with a more promising short to medium term outlook than I can recall over the last five years and we are very well placed to meet the challenges these opportunities bring with them.”

In terms of a forward outlook, AIXG’s chip demand will remain strong well into 2010, and this should continue to spark upside movement in the shares. Over the last 52 weeks, AIXG has gained an impressive 188%, but that’s just the beginning. With total cash of $79 million and total debt of only $1,490, their quarterly revenue growth of 26.40% looks like it’ll be more than enough catalyst to continue pushing shares higher. So as a pure technology “guts” play on a rapidly-growing semiconductor manufacturer, let’s add shares of AIXG to our small-cap ledger now!

PLAY: Buy shares of Aixtron AG (AIXG – NASDAQ) at or under $13.00, good for the week.

Sincerely,