NVE Corp
NVE develops and markets data storage and transmission products that use electron spin rather than charge, a technology called spintronics. NVE products are mostly sensors, couplers and memory components that are eventually connected to integrated circuits. These are especially popular in military, industrial, medical and scientific applications.
The company began paying a regular quarterly dividend in May 2015 at $1 per share per quarter. At the market price of $52.31, this dividend yields 7.65%, more than double the peer group average. Analysts forecast a 25% annual earnings per share, or EPS, compound annual growth rate, or CAGR, over the next five years, making the forward price-to-earnings, or P/E, ratio of 21.2 seem reasonable. This is demonstrated by a price/earnings-to-growth, or PEG, ratio just under 0.85. NVE’s gross margin of 78.7% and operating margin of 62.3% both compare favorably to industry peers. NVE has a net cash position of $6.13 per share. Bulls may note concerns about declines in NVE’s product sales, but the company has been able to offset declining product sales by expanding contract R&D operations.
Skyworks Solutions, Inc.
Skyworks Solutions' portfolio includes amplifiers, battery chargers, diodes, switches, modulators and other components used in such applications as mobile devices, network hardware, automotive electronics and consumer devices. Skyworks’ customer list includes many of the largest enterprise and consumer hardware and software manufacturers.
At a market cap of $15 billion, SWKS trades at a forward P/E multiple of 12.8. With analysts forecasting a 20% five-year EPS CAGR, the PEG ratio is a low 0.64. Skyworks’ dividend yield of 1.32% is materially lower than the peer group median of 2.4%. The company has been able to use capital to drive sustained rapid growth, a return on assets, or ROA, of 22.9%, and a return on equity, or ROE, of 26.7%, all of which compare favorably to peers. Skyworks' margins are among the top 10 of dividend-paying industry peers, though some smaller niche players can drive superior margins amid sparse direct competition. Of the 16 analysts in Zacks’ database covering SWKS, 14 rate the firm as a strong buy.
Cypress Semiconductors
Cypress Semiconductors provides a programmable system for chip products to electronics manufacturers. The company is a global leader in user interface products for applications such as touchpads and touch screens. Cypress also makes products intended for USB components and RAM systems. End uses include industrial, mobile device, automotive, military and consumer markets. In March 2015, Cypress completed a $5 billion all-stock merger with Spansion, Inc.
Analysts forecast a five-year EPS CAGR of 16.9%. With a forward price-to-adjusted-earnings ratio of 9.8, the PEG ratio for CY is only 0.59. At the market price of $9.28, Cypress’ 44-cent annual dividend yields 4.74%, which is superior to the average among peers. As of 2015, over the past 10 years, Cypress has not always returned a net profit. Positive generally accepted accounting principles, or GAAP, earnings are expected for next year. The company’s fluctuating profitability negatively impacts Cypress’ margins relative to peers, and gross profits are narrower than the peer group average. Of the nine brokers in Zacks’ database covering CY, six recommend buy or better. The stock is rated four stars by Morningstar.
Tessera Technologies, Inc.
Tessera Technologies provides investors indirect exposure to the semiconductor industry. Tessera licenses semiconductor packaging, interconnect solutions and intellectual property to clients. This technology is used in applications such as mobile computing, data storage and 3D integrated circuits.
With a market cap of $1.7 billion, Tessera trades at 15.8 times the forward consensus earnings. Analysts anticipate a 20% EPS CAGR over the next five years, which leads to a PEG ratio of 0.79. Tessera also has a history of producing strong cash flows relative to earnings. The company’s price-to-free cash flow ratio of 13.8 is one of the lowest of the peer group. Tessera’s wide operating margin of 68% in the most recent year helped drive an ROA of 36.6%. Both of these metrics ranked highly among Tessera's peers. TSRA’s 2.43% dividend yield is very close to the average for comparable firms.
By Ryan Downie
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