Yes, our economy is in the doldrums. Yes, the market is depressed - - - and still has further to fall. (We see the S&P 500 testing a 700 – 680 zone before any recovery can truly start.) However, this is a good time to begin the task of rebuilding your beaten-down capital.
When disasters of this magnitude strike, many otherwise valuable equities are discounted in the rush to the exits. Perhaps they are sold to cover margin calls. Perhaps they are sold because the investor just wants out of this market entirely - at any price, no matter the cost. Whatever the reason, this truth remains in play: Follow the stock, not the market.
There will always be conditions when value is jettisoned, when good stocks get oversold - and this is when astute investors act.
A recent screening for stocks with earnings, with a low PE, and with a low PEG turned up a fairly large list, but after boiling it down, TriQuint Semiconductor (TQNT) looked to be a prime candidate for swift recovery in this market:
PE = 8.73
Price/Book = 0.5
Price/Sales = 0.5
PEG = 0.54
Many other candidates had comparable ratio numbers (BRY, PTI, MUR, MIR, QCCO to name just a few) but most appeared to be still closely aligned with the trend of our economy. We do not believe TQNT is immune to the effects of our economic turmoil. However, it seemingly has cornered a niche in some fast-growing markets: mobile handsets, 3G and 4G cellular base stations, WLAN, WiMAX, GPS, plus defense and aerospace markets. We expect these to recover sooner and to grow faster than petroleum, shipping, financials, REITs, etc.
Also, we like the fact that the TQNT balance sheet is still strong: over the last 4 reported quarters, Retained Earnings grew to $37.64 mil from $17.95 mil. Cash Flow remained positive all through '05, '06, '07; it turned negative just the last 2 quarters of '08. New guidance brought expected '08 revenue down to $564.4 to $569.4 mil, still up from '07 revenue of $475.8 mil. However, EPS is projected to lose 7 to 9 cents for the year, down from previous expectations of earning 21 to 24 cents. This revision brought on the November drop in share price to a new 52 week low - and thus this opportunity to rebuild lost capital.
Year over year these major metrics are positive and have increased: Revenue, Operating Margin, EPS, ROE. Additionally, as the industry moves to higher technology (read 3G), the RF capability that is TriQuint's specialty will move from $1.50 per unit up to a range of $4 - $6 per unit. Another factor to consider is the burgeoning world-wide demand for wireless connectivity (China, India, N. and S. America).
Given these facts, we consider TriQuint Semiconductor to be a growth and value play, and will be adding it incrementally as the price falls within the TQNT Entry Zone.
Disclosure: None
