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Intel Corporation (INTC): These Semiconductors Shall Lead

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Intel Corporation (INTC)There are several “boom bust” industries which periodically present great opportunities in the market. As a long time investor in the great dividend paying business Intel Corporation (NASDAQ:INTC), I follow the semiconductor industry which has certainly has seen its rocky times. In late 2010, this sector had seen nice growth, but had been busted by the end of the year due to excessive PC inventories as the public started switching over to tablets.

SemiConductor Index (blue) vs. S&P 500 (red)

Since November, the index has begun to recover and has become well positioned to lead the smartphone market. According to Goldman Sachs, inventory is down 17% and they see a rebound this year as the Chinese smartphone industry recovers. The major carriers like Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T) and Sprint Nextel Corporation (NYSE:S) are investing millions to upgrade their networks.

Low Inventories and strong demand have created the set up for the recovery shown in the chart. As always, not every stock in the sector has seen a big rebound. So, let’s take a look at 3 opportunities in this sector, namely Intel Corporation (NASDAQ:INTC), Cypress Semiconductor Corporation (NASDAQ:CY) and Marvell Technology Group Ltd. (NASDAQ:MRVL).

You look Marvell-ous

With the tablet revolution and increasing growth in smartphones, the ongoing boom in electronics is creating plenty of opportunities for chip companies. Marvell supplies large quantities of tiny chips to companies like Cisco Systems, Inc. (NASDAQ:CSCO), Dell Inc. (NASDAQ:DELL) and Toshiba, to name a few. Marvell has focused on networking and storage lately (supplying parts for the solid-state drive market) and is now playing catch-up in mobile.

On the shareholder friendly side, Marvell recently announced a $500 million buyback program. By doing so, it guarantees earnings growth faster than the average S&P 500 company, even if they see zero revenue growth over the next year. Legendary investor David Einhorn (who I spoke more in-depth about in a previous blog about his war on Apple) has seen these numbers and already owns shares. As of this writing Marvell shares are trading at nearly $10.5, a discount  to Einhorn’s cost basis of 13.5. Plus, Marvell pays a 2.5% dividend while you wait for its growth.

Don’t confuse Cypress with Cyprus

I’ve always been a fan of Cypress CEO T.J. Reynolds’ rags to riches story. His no nonsense approach to leading earned him the “100 people who changed the world” distinction in Upside Magazine. Cypress had a horrible 2012, falling nearly half. Despite a weak earnings report back in October, they generated $52 million in free cash flow that quarter. Similar to Marvell, the company is buying back shares and is using the cash to pay a generous 3.9% dividend.

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