By now, my readers know what I like to see in an investment. I’ve formed an investment strategy around Joel Greenblatt’s primary statistics for finding undervalued investments. I like to see cash rich, no debt, high ROE and ROA companies. Today, I’ve added QLogic Corporation (QLGC) as one of my top undervalued picks.
QLogic Corporation supplies storage networking solutions and network infrastructure solutions. It produces host bus adapters; and Fibre Channel switches, including core, blade, and stackable switches.
Let’s take a look at the statistics:
Market Cap: 1.87 Billion
Trailing P/E: 19.49
Forward P/E: 14.12
Cash Position: 478.64 Million
52-week range: $11.46-$22.94
The cash position of QLogic Corporation is 25.59% of the companies market cap. What’s more, Qlogic’s high ROE and ROA mean the company is still generating strong returns for shareholders. While competitors like Broadcom Corporation, Brocade Communications Systems, Inc., Emulex Corporation, and Cisco Systems, Inc. also enjoy strong cash positions, none of them contain as high a cash to market cap ratio as Qlogic. With the exception of Cisco’s higher ROE and ROA, all of the statistics for the companies mentioned above are worse than Qlogic’s.
The 52-week range for QLGC shows that Mr. Market is largely underpricing Qlogic, most probably due to an overreaction as the market convulses in wild directions. QLGC is currently trading close to its 52-week low. There are plenty of fundamentally weaker stocks in the technology and networking sectors with a better marketing story that are trading closer to their 52-week highs. All of this spells out undervalued for QLGC.
If the market rebounds, I expect to see a repricing of QLGC shares closer to the $15-$18 range in the short-term. I plan to pick up 1000 shares at or under $12.50.
Disclosure: The author owns no positions in any of the companies mentioned above.