3 Stocks You Can Buy At 20% Off

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Investors seem to be ignoring some significant values and they are all in the semiconductor industry. Despite its challenges, I own Intel (NASDAQ: INTC) and believe that today's semiconductor king will be a great investment for patient long-term investors. Much has been made about the company's challenges in the mobile market, but there is no getting around the fact that Intel basically owns the desktop, laptop, and server markets. Given Intel's massive research and development budget and close ties to many PC manufacturers, I seriously doubt that the company will be locked out of the mobile market for long. With this in mind, I recently ran a screen on Fool.com CAPS Screener for other semiconductor stocks that are down at least 20% from their 52 week high.

Intel of course was one company this screen returned, and the other two were Applied Materials (NASDAQ: AMAT) and Altera Corp. (NASDAQ: ALTR). There are solid reasons to consider investing in each company, and their 20% discount makes these bargains even more compelling.

A Growth & Income Monster That Will Almost Certainly Beat Expectations:

Applied Materials is a key manufacturer of semiconductors, manufacturing equipment, as well as flat panel and solar technologies. With the stock down 20%, you would expect that there are major problems with the company and they have been missing earnings expectations. However, nothing could be further from the truth. In fact, Applied Materials has consistently beaten expectations by over 40% in the last several quarters. In addition, not only has the company grown earnings, but they have increased from a loss of about $305 million just three years ago to $1.93 billion in income last year. The company's operating cash flow has moved in lock step with $2.4 billion in operating cash flow last year versus just $333 million a few years ago. What is really amazing is analysts expect about 9% EPS growth in the next few years, and the stock yields over 3.2%. Considering the company has been beating expectations by a wide margin, it's very likely this will continue. With the stock trading for just 12.5 times next year's projected EPS, shares seem downright cheap.

The 800 lb. Gorilla Is Far From Finished:

Everyone knows who Intel is, but at current prices the market is acting like Intel is dead money. Shares trade for a forward P/E ratio of just over 10, yet analysts are calling for earnings growth of nearly 12%. What is even more amazing is this company that generates billions of dollars in cash flow has a yield of 4.35%. In addition, Intel is yet another company that consistently beats earnings expectations. In the last year, the company has beaten estimates by over 7% per quarter on average. With an over 4% yield, and a free cash flow payout ratio of less than 50%, the company is in prime position to continue increasing its dividend. Considering that 7.5% of the company's market cap. is represented by the $7.76 billion of net cash and investments on the balance sheet, investors are getting a lot of Intel for less than it appears. This is a rare situation where the dominant player in an industry is selling at a bargain price. Long-term investors need to jump on this opportunity.

This Stock Is 34% Cheaper Than It Appears:

While Applied Materials and Intel seem obvious values based on their P/E ratios, growth, and income, Altera Corp. (NASDAQ: ALTR) is a big value in a different way. Altera is in the semiconductor field as well, and also shares the fact that the stock is down more than 20%. Altera also is expected to post good EPS growth over the next few years of 12%, and has been beating expectations on a regular basis well. This company has been a consistent grower over the last few years, as net income and operating cash flow have both increased by a total of at least 150% in the last three years. One difference between Altera and the other two is their yield. While Applied Materials and Intel pay yields of 3% and 4%, Altera's yield is just 1.2%. In addition, though the prior two trade at multiples at or near their growth rates, Altera is selling for a premium to its growth rate. The company's future P/E ratio is nearly 19, but even this premium doesn't seem like enough. The reason I believe even at this price Altera is undervalued is the company's balance sheet. Altera has net cash and investments of $3.64 billion, yet its market cap is just $10.65 billion. This means that investors are paying 66% for the company's operations, and 34% for the cash and investments on the balance sheet. With the company beating earnings expectations, generating free cash flow, and paying a yield, this stock is much cheaper than it first seems.

Conclusion:

This is just a few examples of stocks in the same industry that are all selling for a 20% or greater discount to their 52 week high. What is unbelievable is all three of these companies are doing well, and offer both growth and income. Investors who are looking for good values, should add these three companies to their Watchlist today.


MHenage owns shares of Intel. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel. 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!

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