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On Monday night, Jim Cramer devoted a segment of his show to Cirrus Logic (NASDAQ:CRUS) which he believes is the single best derivative play on Apple (NASDAQ:AAPL). Cirrus Logic produces high precision analog and mixed signal semiconductors for use in smart phones and smart grid components. CRUS, long an underwhelming performer, has finally hit its sweet spot in two rapidly expanding markets. Furthermore, Cirrus has its chips in both the iPhone and iPad which makes it ideal to benefit from the extremely strong demand for these devices. In fact, Apple components represent a third of the company’s sales.CRUS

Normally such a heavy dependence on a single customer could be a negative, but not in this case argues Cramer, as Apple continues to produce must have products one after another. Another 30% of the company’s business comes from smart grid monitoring technologies, which is a field that many expect to expand rapidly in the near future because it encourages better energy efficiency. Cramer argues that this stock was unfairly brought down more than 20% last week due to European debt fears that have little to nothing to do with its business or future growth prospects. Furthermore, Cirrus Logic just reported a solid quarter and Wall Street analysts have substantially raised full year earnings estimates based on the conference call. The problems in Europe erased the gains the stock had previously made thanks to their operating performance, but investors should view that as an opportunity.

As often happens when Cramer discusses a small or mid-cap stock, CRUS bounced more than 11% on Tuesday morning. Cramer did say that he believes this stock may eventually get to $20 per share, but that “home-gamers” should only buy it under $13 today. After all, if you enter a market order and get it over $13 you are missing the best reason to get in the stock in the first place: its oversold condition following the relatively unrelated European debt crisis last week.

At Ockham, we currently have a Fairly Valued rating on CRUS from our valuation standpoint. We do like the stock’s growth prospects and it is probably a great option as a proxy for playing the Apple story. In addition, the company is expected to show substantial earnings and revenue growth in the year ahead with Apple’s strength as well as wider adoption of smart grid technology. Their balance sheet is pristine with no debt and plenty of cash. However, both price-to-cash earnings and price-to-sales are currently sitting within the historically normal valuation levels, so it is sending neither an Undervalued nor an Overvalued signal. Value investors may want to wait for the stock to cool off after today’s ramp-up however, as Cramer has clearly started a feeding frenzy. Sometimes this heavy activity (4 times daily volume before 11 AM eastern) wears out quickly, but if not, unfortunately according to our methodology value investors may have missed this one.

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Source: Cramer Touts Cirrus Logic to Double Digit Gains