This Is a Buy-at-Your-Earliest-Convenience Kind of Stock
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You may have heard of Himax Technologies (NASDAQ: HIMX) before. Most likely, you heard about it through the research of Mark Gomes, who produced evidence linking the Taiwanese semiconductor company to Google's (NASDAQ: GOOG) Glass project. While it hasn't been confirmed by either company, there is a mounting pile of evidence that it is, in fact, Himax's LCOS Microdisplay that provides the backbone of the Google glasses.
But, quite frankly, I'm getting pretty tired of the Google-Himax chatter and the way that retail investors are treating this company as if it lives and dies by the success of Google's Glass. Shares have risen on Google technology presentations, lowered on news of Google glasses being banned at various establishments, and generally trodden along with Google itself on good days and bad days alike.
But, at the heart of the Himax story, what we have is a profitable company that, due to unfavorable (or favorable, depending on whether you're a buyer or a seller right now) market conditions, is horribly undervalued. I'm writing this article to present why Himax deserves to be considered for your long-term portfolio.
A dividend that matches great profitability
Last year, Himax paid its annual dividend of $0.06 per share. Looking at the share price today, that might seem minuscule. But, at the time, that was about a 4% distribution to the stock's share price that was, at the time, under $2. The small-cap company was coming off of a low year in terms of net income, yet still committed to rewarding shareholders.
Fast forward to the present, and Himax just raised its dividend to $0.25 per share -- providing investors with a nearly 5% dividend. True to the company's word, it has remained consistent with its dividends; in fact, the next distribution (coming in July) will mark the seventh year in a row that Himax has shared its profits with investors. One of my favorite parts about the dividend announcement was the following quote from CEO Jordan Wu:
Due to significant profitability improvement in 2012, Himax increases cash dividend from 6.3 cents per ADS in 2012 to 25 cents per ADS in 2013. The high payout ratio demonstrates our continued support of our shareholder base and long standing profitability.
Note the part about long standing profitability. Himax is a money maker, not a speculative play. It has tripled its EPS quarter-over-quarter and some estimations include a further 50% increase next year. While lots of investors are drawn to companies that are losing money because they show the greatest potential for a large turnaround, we should all remember Peter Lynch admitting that he was 0-25 on companies with no revenue and a "great story."
Sound investing involves finding great companies that are undervalued, not hitting home runs by trying to predict the next big thing every time, which leads us to our next point.
It's irrationally undervalued
A month or two ago, Himax filed for a shelf offering, which granted the ability to sell a large number of shares at any time. It was an advanced warning for what just occurred when Himax's largest shareholder, Innolux Corporation, sold it's full stake in the company. The sale is over now, and 25 million shares were priced at $5.25. Combine that with a recent market correction that pulled the S&P 500 back 3%-5%, and Himax has depreciated significantly from its recent 52-week high of a little over $8 per share.
This provides an excellent opportunity to buy in for those who missed the last run up. Sitting at a P/E of 17, the company has room to grow, especially considering the upside that this company shows for increasing revenue. As a designer, developer, and marketer of semiconductor flat panel displays, Himax has the ability to share the success of an increasingly tablet and smartphone-driven world.
There have been reports that Google chose Samsung (NASDAQOTH: SSNLF) and its OLED technology to replace Himax's LCOS Microdisplays in the Google Glass. However, I'm inclined to question the validity of these reports based upon the expert views of Mr. Guttag, whose article I linked earlier. However, if the reports are true and Samsung is now the supplier for the glasses, I would expect a considerable sell-off of Himax stock. In my opinion, this would simply provide further buying opportunities for investors with a longer time horizon.
To me, Himax's great upside potential, combined with the consistent dividend, current valuation, and a shareholder friendly management team means that the rewards outweigh the risks on this investment.
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.
Michael Gregg has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!