Monday, March 24, 2008

some semi's to look at

semiconductor stocks have taken quite a tumble since peaking in early 2007, with many names losing half their value or more in reaction to issues ranging from the collapse in memory prices to the general slowdown in momentum names. with that in mind, i believe now is a good time to look aggressively for sector names that can be picked up on the cheap.

the first name on my list is flash memory heavyweight sndk, which has tumbled from a high of $79.80 in 1/06 all the way to a present quote around 20. while demand for flash continues to grow significantly, pricing has deteriorated at an astounding rate. so while sndk's profitability hasn't evaporated in the same way it has for DRAM memory names such as mu and qi, sentiment toward the stock is fairly negative. according to capital iq, just eight of the 19 analysts covering sndk rate it a buy, and it trades at just 12 times expected full-year earnings.

in addition, sndk has a strong balance sheet with nearly $1.7 billion in net cash, accounting for about one-third of its market cap, which could serve to help limit downside in the stock. i'd look for sndk to trade below 20 before considering taking a position in the stock.

the second company i think is worth looking at is athr, which specializes in wireless communication chips used in products such as notebook PCs, wireless routers, video-game devices and mobile phones. like sndk, athr is a former highflier, once trading as high as $35.80 late last year. since then, the company has sold off along with other momentum names, in addition to concerns over its first-quarter 2008 results. however, given the secular growth of wireless technology worldwide, as well as its potential as a takeover target for companies like brcm and qcom, i believe the stock is worth looking at when it also trades below $20.

like sndk, athr is a fairly cheap stock, trading at just 17 times expected-full year earnings. it also has a healthy balance sheet with $250 million in cash and investments. however, as with sndk, i'd be patient in looking for an entry point with athr.

the third name is nvda, which specializes in making graphics chips used in PCs, video-game consoles, mobile phones and other products. despite persistent market-share gains against chief rival amd and a string of impressive quarterly earnings reports, the highs reached by nvda's stock have been cut in half. that's due to concerns that the PC cycle is peaking, and that its market-share gains could end soon.

however, at just 12 times expected 2008 earnings, i believe these concerns are more or less already reflected in the stock -- especially considering there aren't many signs that the financially challenged amd is ready to stage a comeback. to further tilt the odds in our favor, i'd look for shares to move into the $16 to $18 range before considering a position in nvda.

disclosure: none, just looking right now

No comments: