Novice Investing - Finding Undervalued Investments II

Date: Tuesday 16th 2010f March 2010 07:50:12 PM

Finding Undervalued Investments II - 11/07/2006

By: Novice Investing Staff

We had laid out three stock ideas for our next portfolio pick last time. The following lists are yet another idea we can utilize for our next stock portfolio pick. As always, we are interested in turnaround companies that can deliver market-beating results.

Infospace Inc. (INSP). The next name on the list is Infospace, which had stumbled badly as it lost one of its major customer, Cingular Wireless. Cingular represents 33% of Infospace's revenue. We have covered it last September and we did simple calculations assuming InfoSpace lost $ 100 Million of its revenue in a single year while growing the rest of the division by a mere 10% annually. The result is that, InfoSpace will reach $ 0.97 per share of profit in 2012, which is a very long time by most standards. During that period, InfoSpace would accumulate $ 4 of losses and yet, it will continue to operate. Why? The reason is its huge positive net cash on its balance sheet. Currently, it has $ 400 Million of positive net cash ($ 12.5 per share) while its stock price is traded at around $ 20. Thus, it is safe enough for investors to wait that long until InfoSpace turnaround. However, the stock price is fairly volatile and investors has no way of finding bottoms. Better Entry Price: $ 13 per share (or cash value) which can be reached if it reports customer defection in the coming two quarters.

OmniVision Technologies Inc. (OVTI). Similar to InfoSpace, OmniVision has lots of cash sitting on its balance sheet. Latest balance sheet shows OmniVision with $ 6.88 per share of positive net cash. Meanwhile, stock is trading at $ 16.00 per share recently. One thing different, however, is that OmniVision is expected to post a profit of at least $ 1.00 per share for the foreseeable future. For the past twelve months, OmniVision reports profit of $ 1.60 per share. While OmniVision is currently profitable, that can turn around quickly. OmniVision is in the business of what it called 'image sensor device'. An example of this product would be the camera phone in your celullar phone. Yes, it is popular and thus, it exposes OmniVision's

business risk. When your business rises sharply, you would expect it to drop sharply as well. Further, competitor is springing up in this highly lucrative business. Micron Technology is one of them. OmniVision had also tried to branch out of camera phone business by exploring the security device systems and the like. This company is the hardest to predict and thus, most risky. At the right price however, it is a worthy investment. Better Entry Point: $ 10.00 per share, representing a modest P/E ratio of 10.

I think 5 companies are broad enough to choose. We should choose one of these companies for our portfolio. Keep in mind that we are looking for 2 stock picks for our portfolio. Therefore, other ideas are welcomed.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding OmniVision Technologies Inc. (OVTI) or any other securities.

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