Paying 60 Cents For A Dollar Of Value

Includes: KLIC, OVTI
by: Bret Jensen


Stock filters can miss companies with hidden assets on the balance sheet.

The market also can take a while to recognize undervalued assets, but eventually this value comes to the surface and reward patient investors.

Below are two attractive cash rich tech stocks that offer investors a way to buy a dollar of value for 50-60 cents.

A good portion of my articles cover some of the more speculative parts of the market such as biotechs or small caps. These are volatile plays that often produce home runs or strike outs. They make for interesting material.

However, these types of investments only make up 10% to 15% of my portfolio at any one time. Deep in my being I am a value investor. Nothing warms my heart more than finding a company with misunderstood and undervalued assets even if it takes the market some time to recognize their true value. Paying 50-60 cents for a dollar of value usually amounts to a winning strategy over the long term.

A lot of companies do not show up on stock screens investors use to search for equities with low PEs for instance. Simple filters cannot differentiate for companies that may have significant hidden assets on their balance sheets such as huge cash balances. A couple of good examples are below among two attractive tech stocks that have a huge amount of net cash sitting around.

OmniVision Technologies (NASDAQ:OVTI) designs and manufactures semiconductor image-sensor devices worldwide. The company primarily offers CameraChip image sensors.

Two things stand out about OmniVision. First it has some $370mm in net cash on the balance sheet. This equates to roughly 40% of its market capitalization at current levels. Second, analysts seem tepid on its prospects on a consistent basis. This is despite the fact the company does nothing but beat earnings expectations. It has beat the consensus earnings estimates by a minimum of 25% in each of the last four quarters.

The five year projected PEG on OVTI is significantly under 1 (.41). Finally, the shares are cheap at right at book value and just over 8x this year's expected earnings. Taking out cash, the shares go for 5x forward earnings.

Kulicke and Soffa Industries (NASDAQ:KLIC) produces equipment and tools for use in the semiconductor industry. The company is the market share leader in the wire bond, wedge bond, stud bump and capillary markets.

The company has one of most cash rich balance sheets I have encountered recently. Kulicke and Soffa has some $550mm in net cash currently. This equates to almost an unheard of 60% of its overall market capitalization.

Revenue should slightly decline this fiscal year (ending in September) but should gain in the mid-teens in FY2015. Taking out cash and KLIC is going for under 8x trailing earnings.

Either of these stocks are good values at current levels. Given their huge cash balances, I would not be surprised at some point in the future they attract shareholder activists looking to create shareholder value by putting all that cash to better use.

Disclosure: I am long KLIC, OVTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.