Time to Buy Semis - AmTech

April 4, 2008 11:52 AM EDT

American Technology Research's Doug Freedman thinks now is the time to buy semiconductor stocks. Freedman says, "we believe it is an opportune time to aggressively buy semiconductor stocks in light of recent under-performance of the SOX as we move past seasonally weak demand periods."

Freedman also said he believes semi stocks are becoming more attractive to value investors.

Here are some reasons Freedman thinks we are near a bottom in the sector.

- Forward P/E multiples are coming off a recent trough, but still low.

- In terms of free cash flow, semiconductors appear to be valued like mature cyclicals, with free cash flow yields in the 7% range, implying a rational P/E multiple in the mid-teens. They believe semis should have a small measure of growth premium above the pure cyclicals.

- Merger and activist interest is increasing. As seen by activist interest in Micrel (Nasdaq: MCRL) shares (Obrem Capital 14.9% stake).

- Believes inventory levels throughout the supply chain have been worked down

Freemman said he does see limited gross margin leverage due to increased transportation and other commodity/natural resource costs.

Some semi stocks: Marvell (Nasdaq: MRVL), Broadcom (Nasdaq: BRCM), RF Micro Devices (Nasdaq: RFMD), Skyworks Solutions Inc. (Nasdaq: SWKS), Fairchild Semiconductor (NYSE: FCS), Analog Devices Inc. (NYSE: ADI), Intersil Corp. (Nasdaq: ISIL), Micron Technology (NYSE: MU) . [LJ]

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• American Technology Research
• Obrem Capital Management

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