ctojeira (42.04)

Time to buy the semis.

March 31, 2008 – Comments (1) | RELATED TICKERS: IMOS , PSI

With DRAM prices appearing to have put in a bottom and word that Elpida plans to increase chip prices 20% next month it seems that now may be the time to buy the semis.

A play on the DRAM bottom that I like is IMOS.  IMOS has done a nice job weathering the storm of a horrific DRAM market, generating $80 mil in FCF in 2007.  They expect to increase this amount to $100 mil in 2008.  Bear in mind that this is a company with a market cap of just over $250 mil.  No, that's not a type-o.

IMOS has taken a beating as investors have doubted their ability to stay afloat as the DRAM market has deteriorated, while their debt levels have remained high.  Well, IMOS has taken steps to reduce that debt (from 97% to 73.5% debt/equity last 1/4) with FCF and will continue to do so in 2008.  They should have no problems achieving this goal even if DRAM prices stay where they are at.

Investors have realized this following their Q4 CC and the price of this stock has bottomed and has rebounded almost 30%.  The good news is that the price still remains over 50% below the highs of last year.  The better news is that if DRAM prices do rebound, this stock can and will double before the end of the year.

This is an excellent risk/reward stock in my opinion.  Do your homework and check them out.

If the risk of a micro-cap like IMOS is too much to stomach, you can make a safer play and buy a Semiconductor ETF.

I think that we've put in a bottom here and am making that call.  Good luck in your investments!