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Better Know A Stock - Part 9



August 11, 2009 – Comments (7) | RELATED TICKERS: ISSI.DL

The inspiration here is all Stephen Colbert's.... he has his series of "Better know a district" so I figured why the heck not... Better Know a Stock, companies that are never followed or too small to be heard of. So here goes that 9000 part series.... =)

Integrated Silicon Solutions Inc. (NASD: ISSI)

Integrated Silicon Solutions primarily provides lower-end or short-term memory devices, SRAM and DRAM, to the automobile, phone and LCD industry. Staying out of the computer industry provides the company with less competition and more pricing flexibility but it makes the company far more susceptible to economic fluctuations. I guess the easiest way to say this is ISSI is incredibly cyclical and its not a particularly good buy and hold long-term investment. However, if you're looking for a company that consistently outperforms analyst expectations in a rising economy, ISSI is a great company.

A particular favorite company of mine, ISSI has always maintained a healthy amount of cash on hand. Currently, the balance sheet shows $2.82 per share in cash on hand with zero debt and the stock trading at just $3.36 per share. For a while in March ISSI was actually trading below its cash value which is just staggering. Historically, ISSI will beat expectations by 10% to 20% per quarter when the overall sector is on the upswing and ISSI will usually begin to rise 9-12 months before the sector fully bottoms (notice it's been rising for the past 5 months). Expectations are currently improving for 2010 EPS figures with a loss of 8 cents projected. I would not be surprised if at sometime over the next 12 months those figures turned into a 12-16 cent profit projection. Although we have no forecasts available, ISSI could earn as much as 45-55 cents in 2011 as the sector ramps back up which would (theoretically, remember this is merely a guesstimate) place ISSI at a forward price to earnings of around 9.

Another fact I like is that not a single insider has sold a share of Intergrated Silicon Solutions since February 2008 and although only 52,000 shares have been purchased by insiders since then (not an overwhelming number) it still shows the continued confidence in the company at these depressed levels. What is truly depressing is just how many shares institutional investors had to unload in all probability because ISSI continues to trade under $5 per share, a level at which many institutional investors are willing to hold onto a stock. Nearly 1/3 of all shares held by brokerage houses were sold over the last six months which artificially beat down the price of ISSI and provided the excellent buying opportunity I see here.

Another favorite of mine is that half of the upper management of Integrated Silicon has been with the company practically since its inception. I think its practically impossible for a company to succeed if it is predominantly made up of people who have been there less than five years. With multiple officers logging 11-21 years with the company I feel confident they are being led in the correct direction.

As I mentioned, the biggest detriment to ISSI is the cyclical nature of the business. Automobiles and LCD Tvs do make up a sizable portion of ISSI's revenues and any downturn in usage greatly affects their ability to remain profitable. When ISSI is firing on all cylinders, they will handily beat estimates and raise guidance, but when things are bad, they will generally be even worse. This is where their huge cash pile comes in handy because they can weather the worst of times by relying on their cash.

All in all, I'd say ISSI represents a great 30 month investment from this point in time. I could see ISSI returning to around the $10.25-$11.00 level within 2½ years if this purported economic recovery occurs as planned. This is not a great long-term investment but makes for an attractive play here given it trades just 15% over its cash value and has a history of profitability when times are good and/or turning off a bottom.

I do not currently own shares in ISSI, however that may change again very soon.

Those numbers don't lie, and that ain't no bull!


7 Comments – Post Your Own

#1) On August 11, 2009 at 11:09 PM, awallejr (35.95) wrote:

Nice blog.

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#2) On August 11, 2009 at 11:29 PM, Tastylunch (28.70) wrote:

This is exactly why the CAPS market cap rule should be changed.

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#3) On August 12, 2009 at 10:18 AM, tgarci2 (61.11) wrote:

Another great pitch about another unknown stock to me.  Thanks as always

 BTW, nice "TreeHouse of Horror - Citizen Kang" comment...I actually pulled out season 8 the about a week ago and watched start to finish in a few days.  The plot and jokes in that episode have stayed consistant with our government through the years, a sad, but humurous fact given the way it is delivered

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#4) On August 12, 2009 at 12:03 PM, afreakout (66.12) wrote:

Sweet!  Unfortunately the word "purported" sticks out to me here like it's flashing neon green.  I love this pick though! 

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#5) On August 12, 2009 at 2:08 PM, darroj (28.20) wrote:

Nice blog and pick - thanks and rec'd for your continued efforts!  Might be worthy of a small portion of some cash I won't need for about 2-3 years...

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#6) On August 14, 2009 at 11:05 AM, tally2007 (63.96) wrote:

Yes, I caught that word "purported" as well.

Always enjoy your blog.

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#7) On April 29, 2010 at 2:42 AM, TMFUltraLong (99.43) wrote:

Did I say $11 within 30 months.. I meant to say $13 within 8 months... damn ISSI is on fire!


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