Investors who hold chip stocks in their portfolios have been hit hard over the last couple of months due to slowing IT spending, falling sales in Europe, and poor guidance from a variety of firms in the industry. However, for long-term investors it is a good time to start building positions in some of these equities, especially those with cheap valuations and robust balance sheets that should see brighter days in 2013. One such chip stock is outlined below.
According to the business description from Yahoo Finance, "Integrated Silicon Solution, Inc. (NASDAQ:ISSI), 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."
Here are seven reasons to pick up ISSI at $9 a share:
- The company has almost 40% of its market capitalization in net cash on its balance sheet.
- ISSI is selling at the bottom of its five-year valuation range based on P/B, P/E, P/S, and P/CF.
- Revenues are expected to be down 4% in FY 2012, but expected to bounce back to post a 13% sales improvement in FY 2013. It has also a low five-year projected PEG (0.66).
- The five analysts who cover the stock have price targets ranging from $12 to $15 a share, all significantly above the current price.
- ISSI is selling at just over seven times forward earning (under five times if you strip out cash), a steep discount to its five-year average (14.9).
- The stock is selling at six times operating cash flow and is adding an average of approximately $9 million to its net cash from operations over the last three quarters.
- It is building some nice short-term technical support at the $9 level (see chart below).
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ISSI over the next 72 hours.