The Big Money Says Hold Integrated Silicon

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Integrated Silicon Solution (Nasdaq: ISSI  ) . Are institutions bullish or bearish when it comes to this memory-chip maker?

Foolish facts

Metric

Integrated Silicon

CAPS stars (out of 5) ****
Total ratings 292
Percent bulls 94.9%
Percent bears 5.1%
Bullish pitches 15 out of 18
Highest-rated peers Cypress Semiconductor (Nasdaq: CY  ) , Taiwan Semiconductor, Linear Technology

Data current as of Nov. 24.

Many of our top Fools in CAPS like this stock as a value-meets-growth play. TSIF bet on it at $8.86 a share on May 20. TMFUltraLong took a position at $6.62 a share on Aug. 31. And mrindepdendent picked up Integrated Silicon $9.26 a share on Oct. 13.

"Integrated Silicon Solutions was selected from a value screen I use that looks for low forward P/Es, high [returns on equity], low price-book and reasonable price trends," mrindependent wrote in explaining his outperform call. "The screen typically outperforms by a wide margin and does best in up markets. ISSI happens to be a highly solvent, cash-rich tech company that is experiencing positive earnings trends."

So far, things haven't worked out for him. Integrated Silicon entered the day trading for $7.43 a share. But as all three of these All-Stars point out, valuation could help fuel a recovery. The stock trades for roughly half the long-term earnings growth that analysts expect.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

BlackRock

2,170

2,170

844,058

1,325,861

Dimensional Fund Advisors

2,921,781

2,023,324

2,125,700

1,292,150

Bridgeway Capital Management

498,400

313,541

371,041

923,541

Renaissance Technologies

1,728,292

1,984,102

1,593,302

678,002

Donald Smith & Co.

3,018,498

2,528,633

2,528,633

668,506

TOP 25 TOTAL

11,081,718

7,583,874

9,566,782

12,228,142

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Even so, not all institutions see Integrated Silicon as a bargain. The top 25 may be buying as a group, but four of the top five have cut their stakes this year. Some have cut back significantly.

For example, Renaissance Technologies trimmed its stake by 43% over the summer. Donald Smith & Co. has sold almost 2 million shares year-to-date, reducing its exposure by 74%. That's not selling. That's dumping.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Atmel (Nasdaq: ATML  ) 81.95% 3.65%
Cypress Semiconductor 84.18% 5.28%
GSI Technology (Nasdaq: GSIT  ) 27.92% 18.19%
Integrated Device Technology (Nasdaq: IDTI  ) 94.13% 0.19%
Integrated Silicon 64.57% 7.37%
Micron Technology (NYSE: MU  ) 80.80% 0.67%
ON Semiconductor (Nasdaq: ONNN  ) 91.89% 2.67%

Source: Capital IQ, a division of Standard & Poor's. Data current as of Nov. 24.

Integrated Silicon looks extremely attractive compared with most of the peers on this table. Why? First, institutional ownership is low enough to allow for further Big Money buying. Second, insiders own enough to profit alongside shareholders as earnings grow.

In fact, the insider action may be telling when it comes to valuing Integrated Silicon's business. Executives and board members last sold at north of $11 per share, a better than 50% premium to what the stock trades for currently.

Now it's your turn to weigh in. Do you think the institutions are wrong about Integrated Silicon? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email or replying to me on Twitter.

Interested in more info on Integrated Silicon? Add it to My Watchlist.

Cypress Semiconductor is a Motley Fool Rule Breakers recommendation. Linear Technology is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Taiwan Semiconductor at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


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  • Report this Comment On November 29, 2010, at 3:53 PM, mert9 wrote:

    With a forward P/E of 6.06, net income accelerating (in the black), and a strengthening cash position over the past three quarters, ISSI deserves a second look. Look again at the most recent quarters, and compare them to last year's annual results. Striking difference. Scottrade indicates one year EPS growth rate at 886%. Plus, look at the market ISSI serves. Digital devices are exploding. ISSI seems to be in the right place at the right time, and management is getting its act together.

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