A $2 Turnaround Story That Deserves A Hard Look

Jun.25.12 | About: Mattson Technology, (MTSN)

Psychology plays an important role in stock selection and portfolio allocation for most investors, whether we like to admit it or not. As an example, I am feeling very good right now even as the markets are closed as one of my core positions, Teva Pharmaceuticals (NYSE:TEVA) looks like it will pop 10% on opening Monday due to excellent Copaxone patent news. I have averaged down on TEVA as it fell this year as I believed in its long term value story and it looks like Monday will provide nice confirmation in that belief. Since one of my core value plays is ready to pay off, I am willing to be a bit more speculative with some of the dry powder left in my portfolio. One $2 stock I will be taking a hard look at acquiring a small position in Monday is Mattson Technology (NASDAQ:MTSN) as it looks like a worthy turnaround story.

"Mattson Technology engages in the design, manufacture, marketing, and support of semiconductor wafer processing equipment used in the fabrication of integrated circuits for the semiconductor industry worldwide." (Business description from Yahoo Finance)

7 reasons MTSN makes for a great speculative play for under $2 a share:
 

  1. Mattson has a robust balance sheet with over $35mm in net cash on the books (35% of market capitalization)
  2. Insider buying is picking up as a director made several new purchases in May.
  3. Mattson is an earnings turnaround story. The company lost 32 cents a share in FY2011, but analysts believe it will recover in FY2012 to post a 9 cent a share profit and then provide an impressive 36 cents a share in the black in FY2013.
  4. The company is already showing solid improvement in operating cash flow. The negative $42mm in OCF for FY2009 has improved to just over $2mm in negative OCF in FY2011.
  5. Revenues are growing rapidly as expectations are for 12% to 15% revenue growth for both FY2012 and FY2013. The stock has a five year projected PEG of under 1 (.97).
  6. Only four analysts cover the stock but they have a median price target of $4 a share on the stock, more than double the current price of MTSN. The low price target is $2.70 a share and the high target is $7.
  7. Given the company's 350 plus patents, low market cap ($65mm after net cash), and product line; it is easy to see how Mattson could be an easy "bolt on" acquisition for a larger player at a significant premium.

Disclosure: I am long TEVA.