MEMC Electronics: Unloved, Cheap and Under Analysts' Price Targets

Jul.29.11 | About: SunEdison (SUNEQ)

It looks like it is going to be an ugly day in Friday’s market as 2nd QTR GDP came in even weaker than the anemic growth expected. Combined with the continuing lack of resolution of the debt ceiling, we could easily be looking at triple digit losses on the Dow today. However, it is looking like a positive day for my just initiated shorts on Green Mountain Coffee (NASDAQ:GMCR), Amazon (NASDAQ:AMZN) and Estee Lauder (NYSE:EL) (All through out of the money bear call spreads). Today, I will be using any selloff to add to the long side of my ledger. One of the out of favor stock I am considering is over 50% under some analysts’ price targets and looks like a good value for long term investors.

MEMC Electronic Materials (WFR) - MEMC Electronic Materials, Inc. engages in the development, manufacture, and sale of silicon wafers for the semiconductor industry worldwide. Its wafers are used as the starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory, logic, and power devices. The company operates in three segments: Semiconductor Materials, Solar Materials, and Solar Energy. The Semiconductor Materials segment offers prime polished wafers, such as OPTIA and annealed products; epitaxial wafers consisting of thin silicon layer grown on the polished surface of the wafer; test/monitor wafers for testing semiconductor fabrication lines and processes; and silicon-on-insulator wafers used in the chip making process.

9 reasons to own WFR at under $7.50

1. It is at the very bottom of its five year valuation range based on P/S, P/B, P/CF. This is good indicator that most of the sellers are done with WFR.

2. It appears to be building a base in the $7 to $8 range (See Chart).

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(Click to enlarge)

3. Insiders are starting to buy the stock, and there has been no insider selling over the last six months.

4. WFR is selling at around 7 times this year’s expected earnings and less than 6 times 2012’s consensus EPS.

5. Good revenue growth is expected in 2011 and 2012, and yet the five year expected PEG is just .5.

6. The move of production capacity from the U.S. to Malaysia will provide up to $55mm in cost savings annually starting in 2012.

7. S&P, although it has a hold rating currently on the stock, projects it will grow EPS an average of 25% annually over the next three years. In addition, the stock is now selling for just about 2 times peak 2007 earnings of $3.56 a share.

8. The company has a strong balance sheet with approximately $700mm in cash to help it ride out difficult times. Its solar vertical integration strategy should also produce growing benefits over time.

9. At $7.50, it is significantly under analysts’ estimates. S&P has a price target of $9 on WFR, and Credit Suisse has a price target of $15.50 on MEMC Electronics. Back in February of this year, UBS had a price target of $19 on WFR. This demonstrates the possible upside for the stock once the semiconductor industry turns up again. Long term buy.

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