A Look at LCDs

01/07/2005 12:00 am EST

Focus:

Jessica Chiaverini

Associate Editor, The Prudent Speculator

Jessica Chiaverini is a co-manager for the highly successful Al Frank funds. She is also the associate editor of The Prudent Speculator, which, according to the Hulbert Financial Digest, shows the best 20-year performance among all financial newsletters.

"AU Optronics (AUO NYSE) is the world's number three maker of flat panel displays. Substantially all of the company's products are thin film transistor- liquid crystal display (TFT-LCD) panels. These panels are used in a wide array of products including notebook computers, desktop monitors, digital cameras, camcorders, cell phones, and television sets.

"LCD makers such as AUO also face competitive pressures from other screen technologies, such as plasma and high-resolution projection TVs powered by digital-mirror chips. Nevertheless, more efficient next-generation screen plants are slated to come on line, and by fall 2005 analysts predict that a 40-inch LCD-TV will retail in the $2,000 range, much more affordable to the average person and a price at which mass-market purchasing may take off.

"AUO has dropped about 50% in price from its March-April highs. Still, the company is expected to earn $2.42 per share this year and it maintains LCD profit margins in excess of its chief competitors. We think the shares are a good value as the stock now trades for inexpensive multiples of 1.2 times sales, 1.7 times tangible book value, and a meager 7.8 times estimated 2005 earnings. The firm maintains a solid balance sheet with a manageable debt load. We are buyers up to $13.46."

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