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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Willie263 who wrote (1523)	6/18/2005 8:47:54 AM
From: Willie263	Read Replies (3) \| Respond to of 2955

A more eloquent and informative post than mine on the strengths of OVTI, taken from Yahoo The firm’s sales grew nearly 200% year-over-year in the fiscal year ended April 2004, are up another 50% this year, and free cash flow (FCF), OmniVision’s business has absolutely taken off the last two years, with sales soaring from $46 million in 2002 to nearly $400 million the last twelve months, while free cash flow has gone from nil to $109 million. Why now? What’s going on? CMOS stands for “complementary metal oxide semiconductor,” and represents a process of making integrated circuits that has existed since the 1960s. However, only in the last few years has this process become viable for creating image sensors, OmniVision’s focus. Why this change is important is simple: creating an image sensor with CMOS technology requires producing only one chip per product. The competing technology, called CCD (charged couple device), requires at least two chips. Well, fellow investor, one chip is cheaper than two and takes up less space, so electronics manufacturers of all stripes are now racing to CMOS technology, benefiting the industry leader, OmniVision. OmniVision has the cutting-edge image sensor technology on the market, including new 5 megapixel chips, and giants such as Siemens (NYSE: SI) are already customers. But this is no start-up. Far from it. Debuting on the stock market in 2000 with $40 million in sales, OmniVision raked in $384 million in sales and $109.5 million in free cash flow over the last 12 months. The company sits on a huge cash balance of nearly $315 million (some $5.55 per share) with zero debt. Its enterprise value at a recent $14 per share puts the stock at a scant 4.3 times trailing free cash flow, while free cash flow is more than doubling. The stock is dirt cheap, even for a “chip” stock. Many chip companies, even those not growing in strong niches like OmniVision, are maintaining value multiples in the high teens and low 20s. Eventually OmniVision should join them. Why it’s interesting to us as investors OmniVision was last suggested to our CGI Members in July 2004 at $11.19 per share. Our July tracking price became $12.44 because the stock rose 8% the day after we suggested it. At CGI, our goal is to select stocks that will double a CGI Member’s money every three to five years. Over the next three to four, CMOS chips such as OmniVision’s are expected to take over a majority of the image sensor chip market, a market still dominated today by CCD chips. This changeover is happening as we speak, but will take at least the next few years to fully transition. This suggests that OmniVision has several years of strong growth ahead of it. Starting from its current value of only 4.3 times free cash flow and 11 times earnings, we believe the stock can more than double within our three-year timeframe, even in a weak stock market. And in a strong market, it could do even better. Intrinsic Value $26.18Current Price, % of IV 53% The discounted cash flow (DCF) chart above shows our estimated intrinsic value (IV) on the stock – where it should trade right now. Today’s IV is nearly double the stock’s current price already. And a double in price would put the stock at a still-cheap 8.6 times free cash flow, well below market averages. With OmniVision, we’re investing in a growing company at a market price that’s far below average. And you know how fickle the stock market is: in the next few years, it’s very likely that we’ll see a chip sector “upswing” and everyone will fall in love with semiconductor stocks for a while again. But we don’t even need that to happen, because we’re buying a company that is uniquely positioned to grow regardless, and is already at a great price today. Plus, we believe that the cynics underestimate OmniVision’s growth potential. Despite strong competition, the CMOS market is growing rapidly enough to lift all strong boats, let alone the industry leader. , OmniVision is a stock that CGI and its Members are buying.