Communications chip designer Avago Technologies
But what Avago does best these days is to generate cash. Historically strong gross margins show pricing power, and fairly stable inventory levels amid several quarters of impressive sales growth prove the customer demand remains strong. And with a mostly fixed cost structure in place, almost every penny of extra income flows right down to the cash accounts.
Avago produced positive free cash flows a year ago, even as net income was printed in red ink. In the fourth quarter, free cash flow increased to $187 million, which is a 63% jump from the previous quarter and a downright ridiculous change from the year-ago period's $26 million. And the company has used its cash-producing powers to pay off all of its long-term debt.
So where does Avago go from here? The stock has already jumped about 79% over the past year. That's in large part thanks to wins in numerous hot sectors and companies getting huge growth for their products. For example, Avago has wins in Samsung and Motorola
Then again, you could say the same thing about close competitors Skyworks Solutions
I think the market is missing Avago's cash-cow aspect in today's modest sell-off. That's why I'm adding this stock to my All-Star Motley Fool CAPS portfolio with an outperform rating. You can do the same in just a couple of clicks.
Fool contributor Anders Bylund doesn't hold a position in any of the companies discussed here. The Fool has written calls (bull call spread) on Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.