After three months of continuous rally, values in the market are starting to get harder to find than an atheist in a foxhole given the still uncertain economic outlook. However, there seem to be plenty of cheap stocks in the semiconductor sector. Here are two cash-rich stocks in the sector that look undervalued from a variety of metrics and that consistently beat analysts' earnings estimates.
"Pericom Semiconductor Corporation (PSEM) designs, develops, and markets high performance digital, analog, and mixed-signal integrated circuits; and frequency control products used in electronic systems worldwide." (Business description from Yahoo Finance)
Four reasons PSEM is cheap at just under $9 a share:
- Half the company's market capitalization is represented by the net cash on its balance sheet.
- Pericom has easily beat analysts' consensus earnings estimates each of the last four quarters. The average beat over consensus during that time period has averaged 45%.
- The stock is cheap at 88% of book value and just 8 times operating cash flow (4 times if adjusted for net cash).
- The four analysts that have an estimate have a median price target of $11.50 on PSEM. The stock is selling at the bottom of its five-year valuation range based on P/S, P/B and P/CF.
"Teradyne, Inc (TER) provides automatic test equipment products and services worldwide. The company operates in three segments: Semiconductor Test, Systems Test Group, and Wireless Test." (Business description from Yahoo Finance)
Four reasons TER is still a bargain at just over $16 a share:
- The company has over $500mm in net cash on its balance sheet (more than 15% of market capitalization at current prices).
- Teradyne has beat consensus earnings estimates for thirteen straight quarters. The average beat over consensus the last four quarters has been over 32%.
- TER is selling at just over 8 times forward earnings, a deep discount to its five-year average (15.2).
- The median price target held by the 14 analysts that follow the stock is $21.50. TER also has five-year projected PEG of under 1 (.72).
Disclosure: I am long TER.