3 Undervalued Tech Stocks That Consistently Beat Estimates

Includes: KLAC, LRCX, WDC
by: Bret Jensen

As the market selloffs and different sectors pull back, select buying opportunities should start to present themselves. One area that seems to have promise is in the tech sector as enterprise spending seems to be holding up better than consumer spending at the moment. Here are three tech stocks with low valuations, a cash rich balance sheet and who have consistently beat quarterly earnings estimates over the last year.

Sandisk (SNDK) - SanDisk Corporation designs, develops, manufactures and markets NAND-based flash data storage card products that are used in various consumer electronics products. The company offers removable cards under the SanDisk Ultra and SanDisk Extreme brands; embedded products under the iNAND brand; universal serial bus drives under the Cruzer brand; flash-based digital media players under the Sansa brand; and wafers and components. Its removable card products are used in consumer electronics devices, such as mobile phones, digital cameras, gaming devices and laptop computers; and embedded flash products in mobile phones, tablets, eReaders, global positioning system devices, gaming systems, imaging devices and computing platforms.

Valuation and Price Targets – Sandisk sells at under nine times this year's and around 8.5 times 2012's consensus EPS after stripping out its nearly $5 a share of net cash. SNDK is selling at the very bottom of its five year valuation range based on P/E and P/CF. Sandisk has handily beat earnings estimates in the past four quarters, three times by over 15%. Consensus earnings estimates for 2011 and 2012 have risen over the last three months. It sells for under 8 times operating cash flow and a PEG of .83. Sandisk's stock has sold off roughly 10% over the last month and now goes for $44.32. Morgan Stanley has a price target of $70 a share, it is $58 a share at S&P and ThinkEquity is at $60.

Lam Research Corporation (NASDAQ:LRCX) - Lam Research Corporation engages in the design, manufacture, marketing and service of semiconductor processing equipment used in the fabrication of integrated circuits. It offers etch products, including dielectric; conductor; micro-electromechanical systems and deep silicon; and three-dimensional integrated circuits, which are used in etching process. The company also provides single-wafer wet clean and plasma-based bevel clean systems, which are used in post-etch/post-strip cleaning and pre-diffusion/pre-deposition cleaning process. Lam Research Corporation sells its products and services primarily to companies involved in the production of semiconductors in the United States, Europe, Taiwan, Korea, Japan and the Asia Pacific.

Valuation and Price Targets – This stock has gotten more than 5% cheaper in the last month. LRCX now sells at just over six times this year's earnings after taking into consideration its $10 in net cash a share. LRCX is selling at the very bottom of its five year valuation range based on P/E and P/CF. Lam Research has easily beat earnings estimate in the past four quarters. It is priced at approximately 6.5 times operating cash flow and a PEG of .8. LRCX is selling at $45.86. Price Targets are at $67.50, $60 at Standpoint Research and $52 at S&P.

KLA – Tencor Corporation (NASDAQ:KLAC) - KLA-Tencor Corporation engages in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. It offers equipment comprising wafer and integrated circuit (IC) defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools; and yield and fab-wide data management and analysis systems. The company also provides products that serve the high brightness light emitting diode, data storage and photovoltaic industries, as well as general materials research. It primarily offers its products to wafer, IC, reticle and disk manufacturers in the United States, Taiwan, Japan, Europe, Israel, Korea and the Rest of Asia.

Valuation and Price Targets – KLAC sells at just over seven times this year's projected earnings after taking out its $6.50 a share of net cash. Its P/E is at a five year low. Sandisk has consistently beat earnings estimate in the past four quarters, two times by over 15%. Consensus earnings estimates for 2011 and 2012 have risen over the previous ninety days. It is priced at projected PEG of less than .9. KLAC is down approximately 10% over the last 30 days. Credit Suisse has a price target of $52 a share, it is $53 a share at S&P and Stifel Nicolaus is at $59.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SNDK over the next 72 hours.