With most of the market fixated on oil prices and credit during these dog days of summer, few have noticed the incredible run in the technology.
In the golden age of the dot com craze, leadership in the market was transferred from financial stocks to stocks with any sort of technology component. That is… until the crash came and wiped out billions of dollars in market value. In 2002, at the start of the last bull market, investors took their cue from financial stocks once again.
This new bull market that began in Mid-July, 2008, may be the return to glory for technology stocks. Over the last month, the technology heavy NASDAQ market index gained more than 10% from its historic lows bringing the loss for the year to a more manageable down 8%.
I’m a big believer in technology especially when we’re scraping the bottom trough of an economic cycle. Historically, productivity gains are largest during the darkest of economic times. Given that technology plays a big role in productivity, owning tech stocks makes a ton of sense to me (For other industry plays you’ll want to consider during down times, see also “Enjoy the Rally and Start Buying Stocks“).
On Friday, August 15, investors sold shares of Vishay Intertechnology (VSH) when the company announced that it was making an unsolicited offer to buy International Rectifier (IRF) for $1.5 billion dollars.
What, on the surface, looked to be a positive for VSH, was taken more negatively by shareholders. Questions about the amount of debt the deal will require plus the company’s prior history of poor acquisition integration, created plenty of doubt about the deal.
The Ultimate Vindication
In the last 30 days, VSH stock has traded 20% higher. However, in the last two trading days since the offer was made, VSH is trading back near its low below $9 per share. I would use this selling as a golden opportunity to buy shares of VSH.
The company has a strong business in semiconductor manufacturing and trades for a very reasonable valuation. With more than $3 per share in cash on the balance sheet and a stock that trades for less than book value, I’m not concerned about the company needing to borrow money to buy IRF. If anything, the time to buy is now, when the market is so weak.
IRF is trading lower as a result of accounting irregularities that surfaced last year. And even though shares moved higher with the market, VSH is still getting an incredible bargain. In fact, investors bid up the price of IRF above VSH’s offer speculating that VSH may be required to pay more in order to close the deal.
Sure, VSH stumbled a bit with respect to the purchase of IRF’s power control division. But in that deal, management lost credibility as expenses for integration were higher than anticipated. Since most merger and acquisitions suffer from the same fate, I would not worry too much here.
If you are a long term investor, VSH is an attractive tech candidate for your portfolio. I’m hopeful that the company can close the IRF purchase, since the deal will only make the company stronger going forward.
This article was written by Jamie Dlugosch, Editor, InvestorPlace.com. For more actionable insights likes this, go to: www.InvestorPlace.com.
