Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

It’s Time to Buy LSI Corp (LSI) Stock. Here’s Why.

It might not be obvious to the casual observer, but right now, today, LSI Corp (NASDAQ:LSI) stock offers one of the best values available in the semiconductor industry. Why?

Three reasons.

LSI is cheaper than it looks

When you stack up LSI Corp (NASDAQ:LSI) stock against a couple of its larger competitors — Marvell Technology Group Ltd. (NASDAQ:MRVL) and Texas Instruments Incorporated (NASDAQ:TXN), it’s not immediately clear that LSI is a bargain. Right off the bat, you can see that the stock sells for 30 times earnings — while TI costs only 23.3 times earnings, and Marvell Technology Group Ltd. (NASDAQ:MRVL) costs an even 22.0.

That said, looks can be deceiving. You’ve seen how LSI Corp (NASDAQ:LSI) looks relative to its rivals today. But now take a look at how the stock might look to investors a year from now. Let’s take a gander at these companies’ “forward” price-to-earnings ratios:

So if you go out 12 months, and look at where LSI Corp (NASDAQ:LSI) might be in a year, what you get is nearly a mirror image of where things stand today. Far from being the most expensive stock in the industry, it turns out LSI Corp (NASDAQ:LSI) could soon be the cheapest.

How’d they do that?

That’s a pretty neat trick LSI stock is trying to pull off. But how will they manage it?

One word: Growth.

According to analyst estimates, LSI’s already outgrown its rivals by leaps and bounds — which probably explains why investors are awarding the stock such a high P/E ratio for its past performance.

If the analysts are right, LSI will continue this outperformance in the future, too. Current projections call for LSI stock to grow its earnings at better than 12% annually over the next five years. That’s 20% faster than Marvell is expected to grow, and 42% faster than TI. (And that’s assuming TI grows at all — no safe bet considering its track record).

LSI passes the cash test

Meanwhile, if LSI stock doesn’t currently generate the absolute best “free cash flow yield” of the three firms named, it’s certainly a contender, outperforming Texas Instruments Incorporated (NASDAQ:TXN) by a hair, and within 1.5 percentage points of Marvell.

LSI Free Cash Flow Yield Chart

LSI Free Cash Flow Yield data by YCharts

And how much do you want to bet that LSI can produce even more cash than Marvell in future years, it it’s growing its business 20% faster? Personally, I think it’s a pretty safe bet.

And that, Fools, is the reason I think now’s a great time to buy LSI stock.

The article It’s Time to Buy LSI Stock. Here’s Why. originally appeared on and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intel.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.