Most of the tech sector (primarily hardware and chips) have been hit recently on slowing worldwide growth and falling demand. Advanced Micro Devices (AMD) became the latest tech firm to cut its outlook this morning. However, myriad beaten down tech firms have cash rich balance sheets, super cheap valuations and are approaching technical support. One stock that meets all those criteria is Qlogic Corp (QLGC) which is offering a good entry point to start to build a longer term position for profits.
7 reasons QLGC is offers long term value at just $13 a share:
- The company has almost $550mm in net cash (approximately 40% of market capitalization) on the balance sheet.
- The stock is cheap at under 9 times forward earnings (Under 6 if you back out cash), a discount to its five year average (13.7).
- QLGC is selling at the bottom of its five year valuation range based on P/S, P/E, P/CF and P/B.
- QLGC has consistently beat quarterly earnings estimates over the past three years and consensus earnings estimates for FY2012 and FY2013 have held up well over the past three months despite the worries around tech spending and the 20% fall in this stock over that time span.
- The company has produced operating cash flow over $100mm each of the last six years and is repurchasing shares.
- The stock has a median analysts' price target of $16.25 a share and Northland Securities just initiated QLGC as an "outperform" in late June.
- The stock is getting close to a longer term technical bottom (see chart).
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in QLGC over the next 72 hours.