Hi Bear,
Back from a fishing trip in Coasta Rica.
An Email to a long time sufferer of Cohu and its lack to run up in price:
Jan and I , along with my Martin Chrysler dealership partners, enjoyed
going to our senior partner's 75 foot Viking Sport Convertible fishing
boat which is docked in a Marina in Golfito Costa Rica.
We enjoyed 5 days there, which include three long days of hard fishing
in a hot , humid and brutal sun out on the Pacicfic. Good Fishing each
day on very pristine waters of the Pacific. I had nothing short of a
great time having hooked and brought to the boat a Sailfish AND a HUGE
BLUE Marlin. Both catch and release. Additionally we caught a good
supply of Mahi Mahi,red Snapper and Pompano. We enjoyed fresh Ceviche
, grilled Mahi Mahi, Tuna and Snapper. We stayed at a first class
Marriot Hotel. A most enjoyable get away from our remodeling chores in
Wisconsin.
I'm of the thought that Donahue and company are aiming to buy back as
much stock as they can, at as low a price as possible. Their secondary
offering landed them with a lot of cash. Cash they want to use
(besides the elimination of debt which has happened this quarter) to
substantially reduce the number of shares outstanding.
There is admittedly a trough in chip production equipment sales going
on. It comes as chip sales have been slowly growing half of last year
and this year so far. That being said, there is also a huge supply
chain shift out of China and some of it going to Asia, while a lot of
it is nearshoring in Mexico and onshoring here in the US.
These are typical equipment cycles which lag as the fab buildings take
time to complete, as well as filling them with modern edge chip
equipment which is a lengthy install, test to specs, and finally ramp
up production. Then almost as an afterthought, the chip makers then
demand yesterday the testhandlers and test equipment. Schwann used to
say it was always at least a quarter behind front end equipment
orders.
As much as I'd like to see Cohu shoot up in price, I think it is a good plan:
Buy back shares cheap.
Expand your footprint into not only test handlers, but test equipment
for MEMS (bought from Rasco and Ismeca) and wafer chip scale testing
devices with the turret handlers, also bought from Ismeca.
When the equipment orders hit, they will have accomplished a much
larger footprint in the new modern Fabs. That bodes well for the next
trough season as their recurring revenue will be larger with a more
diverse array of equipment to keep running.
WE NEED TO WATCH THE DIPS AND SEE WHERE (in price) THE VOLUME
PURCHASES ARE OCCURRING. When their sales volume reaches the mid term
goal of 1 billion in revenue,they have 180 million in free cash flow.
Their usual Capex runs 20-26 million. Let's say it is 30 million, that
leaves 150 million to retire shares and drive up EPS. At a certain
level that becomes a virtuous cycle. AMAT, LRCX, KLAK, all have had
their turn in this step to maturity. Cohu, a much smaller company, has
gained market share scale, and is now giving Klac some testing
competition (read that another growth area).
If and when this develops, share repurchases will continue and then
begrudgingly the dividend will attract dividend investors.
The good news is price appreciation will happen first with the share purchases.
Look at long term charts and see the reduction of shares outstanding
(Afterall they are still giving themselves option candy) and finally a
continuing higher dividend.
Cohu has locked in a dominating global share of test handlers and the
AI rage is a very good news for Cohu's highest margin temperature
controlled pick and place handlers. AI is now a new type of graphics
chip. Graphics chips all need testing with temperature control. The
better news is there can be several of them for each CPU. If the AI
story is not just hype, it then becomes a global wave that all
manufacturers must include in their competitive positions. That could
well be a long term cycle, and give a great boost to Cohu's long term
plan.
They have made many acquisitions Excerra the largest of all. That
appears to have locked in all handlers with renewable sales and a
high margin AI product to boot. Their now finished expansion in the
Philippines can now make contactors at lower costs (higher margins).
Some 90 + percent of all handlers now have extended repair policies
which locks in renewable sales in the future.
It has admittedly been a long frustrating story, but they have given
us a double (that doesn't get taxed - thats powerful). They will
either gain that virtuous cycle (with a price in the 100 plus) or get
bought out by KLAC, AMAT of a well funded hedge fund similar to what
Brooks did.
I have 96,000 shares and will nibble on 4,000 more at the max. If it
drops into the mid 20's, I'll add at 25.00 ish on down to 20 ish.
The longer it takes, the more I'll nibble.
Watch for a final dip and a big volume spike.
It may well be a triple that evolves quickly.
All multibaggers do become more volatile. The best elixir to greater
volatility is a low cost basis.
We're al;ready there and a few more shares won't move the cost, but
the profit will help pay the taxes.
Hold with Confidence and buy the dip.
I do believe Cohu will be a wealth defining moment for both of us!
Cohu is one of two growth stocks I own. The other is Armanino foods
(AMNF). All the rest are dividend growers.
Bob |
