A Tech Leader You Haven’t Heard About

09/27/2011 11:00 am EST


Andy Obermueller

Editor, Government-Driven Investing

It pays to have friends in high places, or in the case of up-and-coming companies, clients that represent the most powerful tech companies on the planet, observes Andy Obermueller of Fast Track Millionaire.

Google’s (GOOG) Wallet program is working to build a global network of merchants that will allow hundreds of millions of customers to forget cash and cards altogether.

Instead, consumers will tap their phones on a special device that will automatically bill them for the purchase. This could be "The Next Big Thing."

The intelligent part of the Google Wallet system, or contactless payment platforms in general, is a special technology called "near-field communications," or NFC. The leading near-field player is the way to leverage the emerging Google Wallet boom in your portfolio.

Just as the Internet has an agreed-upon language, HTML, to standardize content, NFC also has an exact and precisely delineated set of standards.

The industry leader—selected by Google for Google Wallet—is NXP Semiconductors (NXPI), a Netherlands-based chip manufacturer with a market cap of about $4 billion. Despite the almost-guaranteed future earnings to be provided by mass consumer adoption of Google Wallet, the shares command an earnings multiple of only 8.4, which amounts to a 36.8% discount to the S&P 500.

Bear in mind that Wallet is not the only dance on this company’s card. The company also has inked a deal to put NFC technology in Android smartphones. Apple (AAPL) is also a customer. And its more mundane businesses—using the technology to power subway cards in St. Petersburg and similar projects, also generate significant revenue.

Revenue is growing as NFC technology grows more common. Recently released second-quarter revenue was up from the previous quarter, as well as the year-ago period.

And this is where things get interesting. Many chip makers operate at a very thin margin. But NXP’s chips generated a gross profit in the second quarter that was equal to nearly 50% of total revenue.

Let’s not gloss over that point: This is a developing company with a still-emerging technology, and it’s already not only profitable but growing. This company that most investors haven’t even heard of is the No. 1 or No. 2 vendor in every business in which it participates.

It offers a vast patent portfolio. It owns the intelligence at the edge of the network, and is poised to profit from its discoveries for years, either by manufacturing itself or by licensing the technology to others.

Second, NXP has a strong relationship with the world’s leading manufacturers. It’s already the go-to company. That’s the position to be in.

Third, the company has just authorized a significant buyback program to decrease the amount of its shares. The company also has enough cash to fund expansion.

Plus, NXP’s balance sheet shows substantial and indeed growing equity, and the company has enough cash to fund expansion as well as a stock repurchase. It’s a buy.

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