I have begun accumulating EXAR shares below $5.90, and I will continue to accumulate if share prices drift lower. Here's what I like about this company.
One of my favorite activist investment groups,RENAISSANCE TECHNOLOGIES, LLC owns a 5.34% stake in this company. I don't know what their plans are but they often create opportunity for shareholders by forcing management to sell the company. I've done well in situations like this, usually netting a 30% to 60% gain..
George Soros's two sons, manage his investment group now, and they have been buyers for months now. They own somewhere around 14%. The fact that they have been acquiring well above six dollars, creates an opportunity for those of us who can get in for under six dollars. With a 14% stake in the company, we can assume they know everything that is going on, and can see opportunity that the retail shareholder cannot. These guys could also be pressuring management to sell the company. At the very least, they are certainly forcing management to create some shareholder value.
But the most compelling reason for buying EXAR is that they are sitting on $4.50 of cash. There are two reasons I like this. First, it shows that they have been able to generate cash in the past, and second, it creates a margin of safety in terms of what shareholders can lose. No matter what happens within the company or economy, we are not likely to see the share price fall below cash.
One of the most difficult aspects of investing is finding companies with a sufficient margin of safety, allowing us to take large positions in the company. No matter how well a company does, if I don't have a large position, my profits are limited. With this company, their cash position gives me the security to be a net buyer over time.What's the upside potential? I am not expecting a 2X return on this stock. But, I would not be surprised to see one of their competitors offer them eight dollars a share, sometime within the next year.
Also, as long as the Japan fiasco doesn't throw them a monkeywrench, I expect the second half of 2011 to be filled with design wins, some of which could be substantial. Things look bad at this company right now, which is why the share price is approaching cash and volume is minuscule. I see opportunity in this unpopular semi-conductor company and minimal downside risk.