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Vince Martin
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I am a stand-up comedian, writer, and long-time investing aficionado. I even had to chance to open for CNBC's Jim Cramer on his college tour. I had a front-row seat to the 1999-2000 dot-com bubble at a small brokerage in NYC, and I now live in Oklahoma, still deathly afraid of Internet stocks,... More
  • TSRA Consolidates at 52-Week Low 0 comments
    Jun 19, 2011 1:04 PM | about stocks: TSRA

    Tessera Technologies (NASDAQ:TSRA) licenses patents for technology related to the semiconductor industry. The company is a value investor's dream, with $9.65 in cash per share, 61% of the company's closing price of 15.70 (as of June 17th). With an enterprise value just north of $300 million, Tessera:

    • has delivered free cash flow totaling $280 million in the last four years
    • has a trailing EV-earnings ratio of 5.2
    • has a forward EV-earnings ratio of 4.6, based on analyst estimates of $1.32/share for FY11 (numbers from Reuters Finance)

    TSRA is currently trading near its 52-week low of 14.96, though it is consolidating a base of support also reached in mid-March 2011 and early September 2010. While revenues may be impacted by a downturn in the semiconductor industry, as licensing deals provide lower earnings, TSRA's lack of facilities (capex was only $30MM each of the last two years) and strong cash position provide plenty of cushion. And, as noted a few weeks back by Seeking Alpha contributor Frank Voisin, Tessera has a strong history of winning litigation. The company currently has suits outstanding against Sony, Motorola, AMD, and other manufacturers, and a win – or a favorable settlement – in any of these cases could provide a boost to the stock.

    With support consolidating, and a strong floor with the 9.65 in cash, this seems an attractive spot to purchase TSRA stock. With earnings coming in late June, a short-term call could be used to try and capture a bounce off the lows. The July 16 call is available for an ask of .60; this trade is profitable should TSRA bounce 5.7% from Friday's close to reach $16.60 or higher. While the naked call purchase obviously has a good deal of risk, the combination of an earnings beat and the bounce off of long-term support makes the July 16 an interesting gamble.

    On the opposite side of the risk spectrum, a cash-secured put can offer a safer trade with less risk to equity. The September 16 put is bid at 1.40; this requires just a 2% gain in a touch under 3 months to receive our maximum gain of 8.9%, or 36.5% at an annualized rate. The break-even point on this trade is 14.60, a further 7% drop from the stock's already depressed price. At any point below that, we own TSRA at 14.60, or under $5/share net of cash, a solid price for a company projected to earn well over $2/share combined in 2011 and 2012. Between TSRA's solid numbers, its stable of high-tech patents, and the cushion built-in by nearly $500 million in cash and investments, this looks like an attractive trade for the short- and long-term.

    Stocks: TSRA
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