Description

VSH is a beaten-down tech stock on sale. The company is one of the largest non-Asian makers of passive electronic components -- resistors, capacitors, inductors. It also makes active components -- diodes and transistors. Its components are used in products such as computers, cellphones, auto electronics, medical instruments, etc. As these devices get more complex, they require more and more passive components. Vishay is positioned to grow in size and stock price as the market for the devices grows.

COMPETITIVE EDGE
Compared to many of its competitors, Vishay has a more diverse product line. Its purchase of 80% of Siliconix Inc. in 1998 got it into the semiconductor business (Siliconix makes power and analog semis). The diversity provides, in my opinion, a cushion when times are bad in electronics (as they are now).
Vishay also is an aggressive acquisitor. In January, it bought Tansistor Electronics, which makes capacitors. It announced plans in April to buy the 20 percent remaining outstanding shares of Siliconix that it doesn’t own. And, Vishay has proposed acquiring General Semiconductor (sales of $102 million in its latest quarter ) in a stock swap, a move General rejected. That battle’s not over. Vishay’s stated aim is to reduce costs through economy of scale. Barriers to entry in the industry don’t appear to be high, which is not good. However, the company’s plan to get bigger and its long operating history and attendant alliances with customers and supplies should help it.

FINANCIAL RESULTS
Sales slowed this quarter compared with the same quarter in 2000, same as for the other components makers. But, despite the black hole the electronics industry has been in, sales increased 3.6 percent from the first quarter of 2001, to $558,465,000. Gross margin increased in the quarter from 34.8% in 2000 to 35.6 percent. Cash flows from operations were way down this quarter compared to the first quarter of 2000. Cash flows were $15,399,000 compared to $67,235,000. The company attributes the decrease to increases in inventory and accounts receivable. Will have to keep an eye on that to make sure it is nothing other than the same slowdown that affected all electronics component makers. I can detect no sign that it is anything else. Diluted weighted average shares is 138.9 million. That is down from 139.4 million in the same quarter last year, due to share repurchases.Debt is practically nil, with a ratio of debt to equity of .13. Current ration is 4.22 to 1.

IN GOOD COMPANY
Die-hard value fund Third Avenue Value is the second largest institutional owner. That fund owned, from the latest figures I could find, 2,468,700 shares (1.83 percent). Insiders own 15 percent.


VALUATION
At its May 24 price of $25.81, the company has a price/earnings ratio of 6.76, well below the 5-year average of 24. Price/book ratio for the most-recent quarter is 1.83; Price/sales is 1.38. Return on equity was 32 percent (well above its 5-year average of 11.3 percent); ROA was 21.1 percent, compared to the 5-year average of 6.5 percent. Return on investment was 25 percent, compared with 7.6 percent average.

Catalyst

Talking about Vishay, Kemet and AVX, Curtis Jensen, comanager and senior analyst at Third Avenue Small Cap Value Fund, said in the latest issue of Red Herring magazine: “This is a rare opportunity to pick up great growth stocks at bargain prices before they restart their ascent.”
Despite the industry’s bright future, investing in the area has “rarely been cheaper.” Current stock valueations “largely discount expectations for this year’s depressed earnings.”
Besides just being cheap, here’s a possible catalyst: Argus research says VSH is excited about Siliconix’s new family of power MOSFETs, which are much thinner and lighter than predecessor products. According to Argus, “We think these products give the company an important design and marketing advantage in winning power component contracts for third-generation handsets.”
And, as a component maker, Vishay and its competitors are at the top of the electronics food chain, so an upturn in the electronics industry should be led by companies such as VSH.