With Chip Makers Rebounding, Here's the Top Dog

Motley Fool Stock Advisor recommendation Linear Technology (NASDAQ:LLTC) is a bit of an odd duck. I mean that in a good way.

In the semiconductor industry, where most competitors count themselves lucky to break the 50% gross margin barrier, Linear consistently reports gross margins above the 70% mark. What's more, Linear's margins are only expanding. After hitting 75.9% in the second quarter of 2010, this is how Linear stacks up to the competition:

Source: Capital IQ.

Linear's operating margin landed at 45.1%, nearly topping TI's gross take. You can't beat that with a stick of RAM.

In addition to the expanding gross margin, Linear also reported revenues of $256 million and GAAP earnings of $0.33 per diluted share, obliterating sales guidance that topped out at $248 million. CFO Paul Coghlan explained that the unexpectedly strong results grew from a quick recovery in the industrial, communications, and computer end markets.

So think of Linear the next time you buy an Apple (NASDAQ:AAPL) iPhone or Toyota (NYSE:TM) Prius. Although Linear is tight-lipped on its auto customers, chances are that you're getting a few Linear chips inside, and the manufacturer was happy to pay a premium to use a Linear chip. Top-of-the-line products deserve top-of-the-line prices, and that leads to top-shelf business results for Linear.

Elite investor returns should follow. Over the past year, Linear's share price has followed the gyrations of the S&P 500 pretty closely, which tells me that the market really hasn't caught on to the repeatable excellence the company keeps displaying. In other words, the stock is still too cheap for its proven performance, and it's not too late to climb aboard the Linear bandwagon.

But that's just my educated opinion. Share your own thoughts on Linear in the comments below.