Let Atmel Be Your Everything

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous. You could get tips over the company water cooler or from Internet discussion boards. A better way might be to look for stocks based on what you already know and own.

Motley Fool CAPS helps you focus your energies by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list, stocks picked by highly rated players with lists similar to yours, industries in which you currently have active picks, and Saturn's orbit around the sun. Well, maybe not that last one -- but it targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Buy what you know
Based on my outperform ratings on chipmakers like Triquint Semiconductor (Nasdaq: TQNT  ) and Skyworks Solutions, as well as my underperform rating on Spreadtrum Communications in the broad semiconductor and semiconductor equipment sector, the CAPS supercomputer thought I also might be interested in another chipmaker in the burgeoning mobile and tablet markets, Atmel (Nasdaq: ATML  ) , one of five Stocks of the Day it offered up for my consideration last week.

There's been no real let-up in consumer demand for mobile computing and communications technology, so let's see what Atmel has going for it that might warrant an investment, even if the supercomputer hasn't yet picked it for you. Just remember, as smart as the CAPS algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions.

Atmel snapshot

Industry Information Technology
Sector Semiconductor and Semiconductor Equipment         
Market Cap $2.8 billion
Revenues, TTM $1.7 billion
Return on Capital, TTM 17.5%
Dividend and Yield NA/NA
Cash $299.1 million
Long-Term Debt $0.0 billion
Free Cash Flow, TTM (OCF-CapEx) $146.5 million
Recent Price $6.40
CAPS Rating (out of 5) ****

Source: Motley Fool CAPS; S&P Capital IQ.

On the go
Pairing the dismal outlook interactive channel guide maker Rovi provided with the weak guidance for Blu-ray players offered up by sound technician DTS, investors took to heart the message that the consumer-electronics market is facing some strong headwinds ahead. Yet the CE segment isn't monolithic, and there remain bright spots for investors to pick and choose from.

Mobile communications and computing, as I mentioned, remains a source of strength, though even there investors can't just buy indiscriminately. For example, BlackBerry maker Research In Motion is teetering on the brink while Samsung's Galaxy series is becoming one of the hottest smartphone systems around. Similarly, Apple (Nasdaq: AAPL  ) iPads remain the go-to tablet while Android-based models still seek to gain traction. More to the point, Apple's iPhone continues to sell like hotcakes, with 35 million units selling in a non-holiday quarter!

Going where the money is
Both of those trends represent opportunity and risk for Atmel, whose chips are featured in numerous Android tabs but are also what drive the touchscreen interfaces on several Symbian and Android handsets. Nokia's (NYSE: NOK  ) no charm these days, that's for sure, but it's also in Samsung's popular Galaxy Note and Tab 7.7, and Google's (Nasdaq: GOOG  ) new JellyBean OS could help propel its tablets forward from their previously lackluster sales. Atmel's new maXTouch chips are expected to offer an exciting new range in microcontroller and touch solutions.

And there's the Windows 8 OS coming out later this year that will flood the phone and tablet markets. Whether they prove popular with consumers obviously remains to be seen, but Atmel is ready, as the maXTouch controllers are Windows 8 certified as well.

Unfortunately, the one place it is lacking is in Apple products, which are dominated by other chipmakers like Texas Instruments. As baseball legend Reggie Jackson once noted about his playing prowess, Apple products are "the straw that stir the drink." But while the iPad still dominates the tablet market, its grip may be loosening ever so slightly. The researchers at NPD forecast a 72% market share for the iPad this year (others have it slightly less), but that will drop to just 50% by 2017. That's still impressive, but it shows there remains a niche for others ... and Atmel.

Reward without risk?
With its stock cut in half and trading at just 11 times trailing and estimated earning, and at less than half if its projected growth rate, Atmel looks cheap. With its enterprise value at 17 times its free cash flow, it's not a screaming discount from that view, but it's not expensive, either.

CAPS member charledl thinks Atmel's future performance will at least meet expectations, and I'm not inclined to disagree. I've rated the chipmaker to outperform the broad market averages on CAPS, but also let me know your thoughts on the Atmel CAPS page or the comments section below.

While Atmel appears to offer some upside to investors at its rock-bottom valuation, we think another component play holds much greater promise for investors. To find out which stock we're talking about, check out The Motley Fool's free report, "The Next Trillion-Dollar Revolution." It has everything you need to know about one company making all the right moves in all the right computing trends. Get your free information.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Google, and Triquint Semiconductor. Motley Fool newsletter services have recommended buying shares of Apple and Google and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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