Reasons I Added To My Position In Vishay Intertechnology

Vishay Intertechnology (VSH) is a firm that makes lots of little things used in many everyday products. Its two main lines are discrete semiconductors, things like diodes, transistors and such, and passive components (resistors, capacitors, etc.). These are commodity-like products that go into nearly every electronic device imaginable. It's a very competitive business with much of the competition coming from Asian companies.

The company's founder, Felix Zandman, has been criticized for running the company as if he owns it outright. He has been paid well according to public sources while the stock has languished (down 28% since the June 2007 peak). Since Dr. Zandman owns a controlling stake in the company, a takeover seems unlikely, again to some sources. Yet other sources suggest that the private value of the companies' two businesses could be greater than $6 billion. Its current market cap is around $2.4 billion.

I think all these negatives are well-known by the market and are reflected in the stock price. The valuation is compelling -- only 16x this year's EPS, 0.75 times book and 0.9 times sales. If it paid a dividend, I would truly be in love.

Over the years the company has grown nicely via acquisitions. The company's deep relationships with its clients allow it to sell more products into existing sales channels that it receives from buying other companies. It can cut costs, realize economies of scale and grow revenue over time. It is under earning versus its peers and I think this is a positive too. It could, if management chooses, improve its profitability in a number of ways. Dr. Zandman is 77 years old and although seems to have no plans to retire, may not be running the company forever. A new management team may view things very differently.

The stock was weak yesterday following an in-line quarter but weaker guidance for the third quarter. It seems seasonal factors were a part of the story too. This is not a stock for the next quarter, but one that should do very well over the long run.

Reasons I like the stock:

1) Valuation.
2) Ability to improve profitability.
3) Corporate drama potential if Dr. Zandman retires.
4) Its recent underperformance has created a buying opportunity.

I bought another 900 shares yesterday and now own 2,800 shares. As of this writing, VSH represents 6.0% of my portfolio.

VSH 1-yr chart:

Comments

[TomArmistead]

I have been long VSH for similar reasons, but now that they have announced the offer for IRF I am starting to have second thoughts, it seems like the deal is too big.

Do you have any thoughts on the proposed acquisition?