You can add Analog Devices (NYSE: ADI) to the Greek chorus chanting "Low demand ahead; low demand ahead!"
It's a popular exercise these days, particularly in the semiconductor industry. You know the drill by now:
- Report earnings and/or sales at or above analyst expectations.
- Say something defensive about "soft consumer demand," "low end-market demand," or some variation on that theme.
- Watch the share price fall, no matter how good the just-reported results or how bright the long-term outlook.
Linear Technologies (Nasdaq: LLTC) did this six weeks ago, promptly followed by Atheros Communications (Nasdaq: ATHR). Silicon Valley is littered with the bodies of chip stocks that took a beating after following the script above. And now Analog Devices has joined the chorus line, saying, "Guidance is indicative of typical industrial seasonality coupled with potentially lower consumer demand."
But Mr. Market seems to be learning something from history here. Analog's stock actually outperformed the broader market the day after its fourth-quarter report. That gives some credit to a performance that included 35% year-over-year sales growth and more than double the earnings per share at $0.73. Gross margins are on the rise, Analog added a cool billion dollars to its share repurchase program, and the stock even sends a respectable 2.4% dividend yield to investors. All of this is on sale for less than 16 times trailing earnings and a PEG ratio of just 0.88.
What's not to like? If you want a smaller and more nimble version of Texas Instruments (NYSE: TXN) with all of the shareholder-friendly goodness and faster growth, this stock is for you. Analog Devices has beaten the market by 14% since I added an "outperform" CAPS rating on the stock three months ago. This stock can help your CAPS score, too -- just click here.
