Mike,
Presenting this for discussion.
As I posted on another thread, I ended up buying TSEMF - Tower Semiconductor. I've been following it down and it seems to have hit resistance. A fund sold off their shares and buyers have not yet surfaced because of sector weakness.
I have avoided tech stocks for over a year now because I considered them overpriced, but the market has totally dumped them and I thought it might be a good place to look for the oversold. I feel Tower to be a good buy at this level.
Tower is selling @ $11.00. EPS was .33 last Q, 1.45 for the year. Analysts have projected earnings of .01-.11 for this Q with a consensus of .06, .40-.60 for '98 and consensus of .50. I can find no additional dilution.
$11.00 is 88% of BV. They have +/-$6.00 in cash. This makes no allowance for high depreciation or their technology. Any buyout would be at a much higher price and they are a good buyout target.
My thinking:
For them to come in at the consensus, they would have to make no cost reduction and see revenues fall over 50% from last quarter. It's the same for the '98 projections. They would have to continue the R&D, G&A, and overhead expenses at '97 levels in spite of a 50% drop in sales. This is a well managed company and I can't see it.
They projected a decline in sales. This would automatically cause them to lower inventories. Throughout the sector, suppliers and customers have lowered inventories in anticipation of lower prices.
I've been reading about the sector. Planned expansion of new wafer foundries have come to a big halt. This is particularly true in Asia with companies lacking monies for capital expenditures. Even some projects that had been started have been put on hold. This isn't a labor intensive business and the devaluation of Asian currencies would not give a major advantage. There is an increasing demand. Prices have been under pressure, but Tower seems to have cut costs and maintained margins.
IMO - Selling below BV with Tower's strong balance sheet, TSEMF is a very good buy at this price level. Revenues will not fall off enough to cause earnings to be at analysts projections. Tower will make cost reductions to compensate for lower revs. The Asian problems actually give Tower an opportunity. Inventories are being depleted. By year end, Tower will rebound strongly.
Where am I wrong in my reasoning?
Ron
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