I know I haven't been posting a lot. I've been doing a whole bunch of digging out there in the market place. I just liquidated half my portfolio to cash. 'coz I wasn't comfortable with current market levels. A lot of the big name stocks are floating around at 2006/07 valuations. Yes, the economy is improving. But does it really justify such lofty valuations? I don't think so.
Anyway, I decided that if the market isn't going to correct. I'm looking into plays that are less market dependent - Special Situations. Odd ball plays.
Actions Semiconductor Co Ltd is one such play. It currently trades for less than the cash value on its books. It has $235MM in cash. The market cap is $195.5MM. ACTS lost $2.3MM in the first 6 months of 2009, specifically $777k in 2Q09. I think they are slowly righting their ship. Losses aside, the company is still sitting on a large cash pile. I believe that this is a good opportunity to take advantage of this.
This is not a company that I'd invest in long term. The company manufactures chips for MP3 players, which are seeing heavy competition from mobile phones as alternative music listening devices. Most importantly, the company is seeing margin contractions that is common to the industry. In 2Q 2009, ACTS reported a gross margin of 27.7%. Their prospectus reports that in 2004 to 2005, their gross margins were above 40%. So we can see that they are getting squeezed here.
The one thing that really impressed me about these guys is that all the senior management VP level and above, department heads took a 20% pay cut. That reduced their SG&A significantly. Very impressive that the senior management bit the bullet. On top of that, the company increased R&D expenditure by hiring more staff and increasing their research budget. Now that's the proper way to run a business!
All in all, this is still a good company to invest for the short term reset of the price or for a one time special dividend.
Disclosure: Currently, I do not own ACTS stock. I may invest in the company in the future.
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