Companies that can turn a profit are always nice, but companies that can also continually add to their war-chests are even better. Having cash on hand is an advantage, because companies can consider making strategic growth acquisitions, or invest in themselves by putting more money into R & D. Having plenty of cash is especially advantageous to tech companies, who always have to stay cutting edge. Currently, we are focusing on tech companies that have enough cash to possibly make a big play. We then honed in on companies that also look undervalued from a price-multiple standpoint, meaning now could be the time to give them more thought. We came up with an interesting and diverse list of companies that we hope you find interesting.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio, because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
We first looked for technology stocks. We then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We next screened for businesses with a low price-multiple premium (forward P/E<10)(P/E<10). We did not screen out any market caps.
Do you think these stocks have strong operations? Use our list to help with your own analysis.
1) AXT Inc. (AXTI)
|Industry:||Semiconductor - Integrated Circuits|
AXT Inc. has a Current Ratio of 9.86 and Quick Ratio of 6.15 and Forward Price/Earnings Ratio of 8.56 and Price/Earnings Ratio of 7.26. The short interest was 4.78% as of 06/01/2012. AXT, Inc., together with its subsidiaries, designs, develops, manufactures, and distributes compound and single element semiconductor substrates for use in wireless communications, lighting display applications, and fiber optic communications. It offers semi-insulating gallium arsenide substrates, which are used for applications in power amplifiers and radio frequency integrated circuits for wireless handsets; direct broadcast televisions; high-performance transistors; and satellite communications. The company also offers semi-conducting gallium arsenide substrates, which are used for applications in light emitting diodes, lasers, and optical couplers; substrates made from indium phosphide that are used in broadband and fiber optic communications; and substrates made from germanium, which are used in satellite and terrestrial solar cells, and optical applications.
2) Integrated Silicon Solution Inc. (ISSI)
|Industry:||Semiconductor- Memory Chips|
Integrated Silicon Solution Inc. has a Current Ratio of 4.82 and Quick Ratio of 3.73 and Forward Price/Earnings Ratio of 7.15 and Price/Earnings Ratio of 5.26. The short interest was 3.61% as of 06/01/2012. Integrated Silicon Solution, Inc., a fabless semiconductor company, designs and markets integrated circuits for digital consumer electronics, networking, telecommunications, mobile communications, automotive electronics, and industrial, military, and medical markets. Its primary products include low and medium density DRAM; and high speed and low power SRAM. The company's low and medium density DRAM products are used in wireless local area networks (WLANs), base stations, networking switches and routers, fiber to the home [FTTH], DSL and cable modems, set top boxes, digital cameras, MP3, flat panel TVs, LCD TVs, HDTVs, video phones, voice over Internet protocol, printers, disk drives, tape drives, audio/video equipment, instrumentation, global positioning systems [GPS], telematics, infotainment, smart meters, and other applications.
3) Power-One Inc. (PWER)
Power-One Inc. has a Current Ratio of 2.84 and Quick Ratio of 2.11 and Forward Price/Earnings Ratio of 7.69 and Price/Earnings Ratio of 5.85. The short interest was 5.07% as of 06/01/2012. Power-One, Inc. engages in the design, manufacture, sale, and service of power supply products for the renewable energy [RE], servers, storage and networking, telecommunications, industrials, and network power systems industries worldwide. Its products convert, regulate, purify, store, manage, or distribute electrical power for electronic equipment. The company provides RE inverters, which convert solar or wind energy into useable grid connected power for use in residential and commercial, and utility-grade solar panels, as well as wind turbine farms; and alternate current (AC)/direct current [DC] power supplies that convert AC into DC voltage used primarily in networking systems, network servers and storage, and industrial equipment.
4) Corning Inc. (GLW)
Corning Inc. has a Current Ratio of 5.50 and Quick Ratio of 4.97 and Forward Price/Earnings Ratio of 8.60 and Price/Earnings Ratio of 8.12. The short interest was 1.53% as of 06/01/2012. Corning Incorporated produces specialty glasses, ceramics, and related materials worldwide. The company operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. The Display Technologies segment manufactures glass substrates for liquid crystal displays (LCDs) for notebook computers, flat panel desktop monitors, and LCD televisions. The Telecommunications segment produces optical fiber and cable, and hardware and equipment products, including cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment, and other accessories for optical connectivity to the telecommunications industry.
5) Kulicke & Soffa Industries Inc. (KLIC)
|Industry:||Semiconductor Equipment & Materials|
Kulicke & Soffa Industries Inc. has a Current Ratio of 3.14 and Quick Ratio of 2.84 and Forward Price/Earnings Ratio of 7.51 and Price/Earnings Ratio of 8.03. The short interest was 4.07% as of 06/01/2012. Kulicke and Soffa Industries, Inc. designs, manufactures, and sells capital equipment and expendable tools to assemble semiconductor devices, including integrated circuits, powered discrete devices, light-emitting diodes, and power modules. It also services, maintains, repairs, and upgrades its equipment. The company operates in two segments, Equipment and Expendable Tools.
6) Entegris, Inc. (ENTG)
|Industry:||Semiconductor Equipment & Materials|
Entegris, Inc. has a Current Ratio of 6.04 and Quick Ratio of 4.86 and Forward Price/Earnings Ratio of 9.76 and Price/Earnings Ratio of 9.40. The short interest was 3.36% as of 06/01/2012. Entegris, Inc. develops, manufactures, and supplies products and materials used in processing and manufacturing in the semiconductor and other high-technology industries worldwide. It operates in three segments: Contamination Control Solutions, Microenvironments, and Specialty Materials. The Contamination Control Solutions segment offers liquid filtration products, components and systems, and gas filtration products that purify, monitor, and deliver critical liquids and gases to the semiconductor manufacturing process and similar manufacturing processes.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.