I just attended the Stifel technology investor conference in San Francisco and came away with some new investment ideas. Over 140 companies presented and overall the tone was very positive. Demand for technology and related products is growing at a fast clip. The semiconductor industry is seeing a broader use of its products into automotive, industrial and “internet of things” applications so is less prone to the previous cycles associated with PC’s. Demand for mobile phones continues and is growing for software and related services. Industrial applications including “additive manufacturing” using sophisticated software, Lasers and 3-D printing are experiencing robust demand. While business is good, stock prices are near record highs so you should take a long-term view.
Of the 140 companies presenting, I selected 15 to attend and came up with a list of 4 to consider. Full disclosure – I now own all 4 stocks.
At the top of my list is an Israeli company called CyberArk, ticker CYBR. CyberArk is a software company that protects organizations from cyber-attacks that have made their way inside the network perimeter. This is very important as many hacks can easily penetrate the firewall but remain dormant for some time and then begin to cause havoc. CyberArk’s products provide the protection to find and detect issues before they become a major problem. The company is growing, profitable, has good cash flow, lots of cash and no debt. It’s not cheap, trading at a 35 price to earnings ratio, but the upside seems very high in my opinion.
Next is a larger but not all that well-known semiconductor company – Microchip, ticker MCHP. Microchip makes microcontrollers and analog semiconductors used in thousands of applications from refrigerators, motors, autos, lighting and numerous industrial applications. This is not a mobile phone semiconductor company and no one customer accounts for more than 3% of revenue. It is a way to play long-term growth in electronics without relying on laptops and PC’s. It is a fairly large company with nearly $4 billion in revenue. MCHP has an excellent track record of improving profits and margins and recently completed a major acquisition and is beginning to see the benefits. It is trading at its 52-week high so not undiscovered. The company has plenty of cash as well as long-term debt and pays a dividend with a yield of 1.77%.
The next company is a 20-year favorite, Intuit, ticker INTU, best known for TurboTax, Quicken and QuickBooks. It’s a large company with a market cap of over $35 billion, trading near its 52-week high and is not cheap. It has a big seasonal movement in revenue with Q1 strong due to TurboTax. What I learned is that they are doing a major expansion outside the US. Their platform works well with self-employed and small businesses where most of the worldwide job growth is originating. In addition, any tax reform will likely make things that much more complex so TurboTax should only grow. It pays a dividend with just under a 1% yield.
The last company is a smaller semiconductor measurement company called Nova Measuring Instruments, ticker NVMI. NVMI sells optical and x-ray metrology systems which are attached directly to wafer fabrication process equipment. This is important as semiconductor devices are getting smaller and smaller so accurate measurement during the manufacturing process is vital to higher yields. They are growing, profitable and have no debt. It too is not cheap trading near its 52-week high but the industry is growing and few companies can do what they do. On top of this, there has been a lot of M&A activity in the space so they could be a very attractive acquisition target for a larger semiconductor capital equipment company.
When considering any investment, I encourage you to do your homework and discuss this with your investment advisor and CPA to see if this is suitable for you.
Ray Link is a CPA and holds an MBA from the Wharton School. He served for 20 years as a CFO for 2 large high-tech public companies before he retired. He is now on the on the Board of Directors of FormFactor (NASDAQ: FORM), Electro Scientific Industries (NASDAQ: ESIO) and nLight Inc.
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