FormFactor, Inc. (FORM)

portefeuille2

Lots of cash, no debt, good niche market. Semi's will grow, and grow, and grow....imagine how many products will come on the market in the next 10 years that will require a semi-conductor.

Form's a winner....buy low, hold long.

Fool Hidden Gem on 11/9/09 due to surprising drop in price.

The stock has potential to make a strong rebound in upcoming 2010.

FORM makes tools for testing DRAM. The movement to DDR3 will, eventually, make FORM a superstart. In the meantime, it is a Hidden Gems selection, has great management, and has had no disappointments. Its stock has tanked recently for no good reason, so its time to buy buy buy! Target 25-35 by 3Q 2010

spiritualman picked it after the big selloff. Also, nice upgrade to outperform today from FBR Capital Markets.

Optimistic on earnings tomorrow.

FORM should should follow function (testing) with sales at chip companies rising.

Chips will never go out of style.

HG

good buy

Good catalysts are hard to find. FORM looks like it has more than one.
- Apple is highly likely to bring another cool new game changing gadget to market that will add demand for more small DRAM, flash, and logic chips.
- Solid state hard drives based on flash seem to be taking a piece of the hard drive market, starting with laptops, and will increase the demand for flash chips.
- Vista flopped, creating extra pent up demand for Windows 7, and setting up the October launch of Windows 7 to trigger a bigger than usual upgrade cycle.
- Chip makers have held off on equipment upgrades during a nearly 2 year down cycle in their market, leaving a lot of aging test equipment ripe for replacement.

When I first looked at FORM, I quickly became concerned over management turnover and overuse of stock option incentives. The founder exited the company somewhat hastily. New CEO Ruscev has 60 times as many options as he has shares. And, the company is one of those that seem to think stock options need repricing when their industry takes a hit. At least executives didn’t get considered for options repricing.

But, CEO Ruscev put up and impressive record in his first year at the helm. He slashed costs early in their downturn, moved design teams closer to their customers, and kept R&D going strong to position the company well for the rebound.

The timing of the rebound is the big question. Given the multiplicity of catalysts, my money is on sooner rather than later.

FORM has quite a bit of cushion, with tangible equity = to about 1/2 of its market cap ($1 B), all in cash and short-term investments.
The stock is now 1/2 of its average stock price for FY '06 and '07, with a PE of ~17.5 in '06 and ~14 in '07. However, during '08, sales were cut in 1/2 and losses abounded (mostly non-cash losses, which has helped the company maintain a solid balance sheet).
Given the clear volatility in its customer's purchases, offset in part by the future growth potential of the company, I would guess that the company's stock price has some reasonable upside; however, I would keep a close eye on this one if the stock price gets much above $40-$45 without some solid earnings to back up its multiple.
2 thumbs up out of 3

Everything's down right now, but people aren't going to stop buying electronics.

Should make a nice longer term buy given the depressed market.

Heavy cash ($10 per share) makes this a value play mid to long term.

testing screen

The pitch for this stock can be found on the Stinky Feet discussion board at http://boards.fool.com/Message.asp?mid=26915730 . Stop by and let us know what you think of this pick.

Patience being the key word here. This is a depressed cyclical. Providing others don't catch up in terms of technology, when prices for the end product start turning up, FORM will shoot up as well. This may bounce around at low prices for a bit, but when it heads up, it will be a great stock to own.