Integrated Gains

12/31/2004 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

John Buckingham is an advocate of diversification and is hesitant about selecting a single favorite. Nevertheless, he is consistently one of the best stockpickers around. His pick last year, Optimal Robotics, rose 45%. This year, he looks to a semiconductor play.
 
"A rebound in the shares in communications processor manufacturer Integrated Device (IDTI NASDAQ) petered out in mid-November, leaving the stock trading still well below our buy limit of $13.61. Integrated designs, develops, manufactures, and markets semiconductor solutions that help accelerate packet processing for advanced network services. While we think that IDTI operates in an industry with excellent long-term growth potential, recent results have been disappointing as the September quarter saw many customers reduce purchasing activity in order to realign inventory levels in the enterprise and wireless markets. Still, IDTI was profitable in the quarter with GAAP net income of $0.08 per share and the bottom line is expected to remain in the black in the December period as well as throughout 2005.
 
"We believe that technology investors will flock back to IDTI once evidence of a communications chip biz recovery begins to emerge. Of course, that faith alone would not be enough to justify a purchase, but IDTI is also another in our long line of 'Cash-is King' recommendations as the company maintains about half its share price, or $5.66 per share, in cash on its debt-free balance sheet. This cash cushion provides downside protection and affords the company the financial flexibility to weather the lean times, make acquisitions, invest in research and development, and buy back stock. A $50 million share repurchase was recently authorized. Our long-term, three-to-five year target price for IDTI is $27."
 

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