Hager: "A Different Kind of Semi"
11/21/2003 12:00 am EST
Fred Hager, editor of The Hager Report, is a leading authority on high technology stocks. He often looks for niches markets, new technologies, and firms with strong patent positions. One stock among his favorites is International Rectifier, which he considers "a different kind of semiconductor company."
"International Rectifier (IRF NYSE), a holding in our model portfolio, is doing quite well in the market this year. Since September, the stock is up 18%; it is up 154% on the year. Unlike some semiconductor companies who increasingly rely on commodity products, International Rectifier is increasing its revenue stream from proprietary products. This trend is increasing the margins of the company. Since 1999 revenues are up 50%. Proprietary product revenues are up however a whopping 333%.
"The company forecasts that the current $10 billion market for power management will increase to a $70 billion dollar market within a decade. International Rectifier is the leader in this specialty class of semiconductors. Power management is essential for a wide variety of technical applications including products for defense, portable electronics, automobiles, information technology, and even energy efficient appliances. With such a diverse set of product markets, International Rectifier is very leveraged to a broad based economic recovery that appears to be well underway.
"IRF reported a 37% year over year improvement in the PC business. Further proliferation of laptop computers helps solidly the business for IRF. That is because the portable PC requires keen attention to the power management. New opportunities are also present in applications to address the ailing power system grid. As a top to bottom power management company, IRF is well positioned to benefit from a variety of rebounding and growing markets. While the valuation of International Rectifier is essentially in line with the semiconductors, I believe the growth prospects for the company in an expanding economy are under estimated. With a higher mix of proprietary products continuing to improve the company's margins in a specialty arena set to more than quadruple in the coming years, IRF is well positioned for long term appreciation."