Investing in an undervalued high-growth play brings an inherent challenge. Shares are usually undervalued because the near-term growth prospects aren't as bright as the long-term prospects. This was the biggest risk factor I laid out when I added Cree Inc. (Nasdaq: CREE) to my $100,000 Real-Money Portfolio.
"Cree isn't a stock to own for near-term results. It may look quite cheap at just 12 times consensus fiscal (June) 2013 forecasts of around $1.80 a share. But I want to take a much more cautious stance, anticipating per-share profits of just $1.50," I noted when I recommended this stock last month. In fact, subsequent tepid quarterly results led analysts to lower their view, so the consensus fiscal 2013 profit forecast now stands at $1.47 a share. Nevertheless, shares have staged an impressive rally and are now up more than 30% in the past two months.
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