Charles F. Boucher
Analyst, Bear, Stearns & Co. CATEGORY: Semiconductors STOCK PICKS: LSI Logic (LSI), Texas Instruments (TXN), National Semiconductor (NSM)
Bear, Stearns & Co.
STOCK PICKS: LSI Logic (LSI), Texas Instruments (TXN), National Semiconductor (NSM)WHY: Semiconductor stocks, like the rest of the tech sector, haven't had an easy time since March. Many chip stocks have tumbled by a third in the past few months, and a few, including Conexant, have plunged as much as 70%. Bear, Stearns analyst Charles F. Boucher acknowledges that "investors had gotten ahead of themselves" this spring, but now he says it's time for another look.
A favorite is Milpitas (Calif.)-based LSI Logic Corp., which makes chips for networking equipment, servers, and consumer devices such as set-top boxes and video cameras. LSI "sells into fast-growth markets linked to the Internet," Boucher says. LSI's advantage, he says, is that it's a leader in jamming various computing and communications functions directly onto the chip. Those added applications typically require more proprietary features to be embedded on the silicon, which makes for higher margins. Boucher expects LSI to more than double its share price, to $100, in the next 12 months. "The only reason you wouldn't buy this stock today is if you had any serious reservations about the semiconductor industry and the markets it serves continuing to grow," Boucher says.
Another solid choice, Boucher says, is Texas Instruments Inc. In the past several years, Dallas-based TI has eliminated less profitable product lines, such as memory chips, and has focused on digital signal processors. These are chips found in nearly every modern product, from cars to cell phones to Furby toys. Boucher has a 12-month target price for TI of $100, up from $72 today.
Perhaps Boucher's riskiest pick is Santa Clara (Calif.)-based National Semiconductor Corp. The company took a beating in the mid-'90s, after it bought PC-chipmaker Cyrix Corp. and took on industry giant Intel. Now, following the sale of Cyrix and a $688 million special charge to clean up the damage, Boucher believes National's managers have "learned from their transgressions." He expects the stock to double to $105 in the next year. The risk? National could "get wanderlust again" and make another acquisition like Cyrix, "but I don't believe it's likely," says Boucher.