This article is part of our Rising Star portfolio series.

If you're following along closely (and by golly, why wouldn't you be?), you know I've been searching for an international stock to add to my multivitamin Rising Stars portfolio. Yes, lululemon athletica is headquartered in Canada, but I want to get some non-North American exposure as well.

That leads me to this month's recommendation: Kulicke & Soffa Industries (Nasdaq: KLIC).

The business
It may sound like a furniture designer, but Kulicke and Soffa makes equipment that semiconductor manufacturers use to assemble chips. This $775 million small cap is headquartered in Singapore, and provides fantastic international exposure. Nearly all of the company's revenue is generated outside the U.S., and most of that from the Asia/Pacific region. Its customers include the likes of Samsung, Micron Technology (Nasdaq: MU), Texas Instruments (NYSE: TXN), and STMicroelectronics (NYSE: STM).

K&S operates two main segments, equipment and expendable tools. Equipment accounts for about 90% of revenue, and consists of such adult-sounding stuff as ball bonders and stud bumpers. Expendable tools are replaceable, like saw blades for silicon wafers and capillaries for ball bonders.

Here's a very brief summary of some of K&S's popular products, but don't worry ... there won't be a test afterward:



Ball bonder Connects fine gold or copper wire to semiconductor.
Wedge bonder Connects aluminum wire or ribbon to semiconductor.
Die bonder Attaches semiconductor die to substrate.
Stud bumper Mechanically applies bumps to die.

These products are used by semiconductor device manufacturers, outsourced semiconductor assembly and test providers (OSATs), electronics manufacturers, and automotive electronics suppliers.

Why I'm buying
This portfolio is all about screening, and Kulicke & Soffa consistently hits my Best Semiconductor Values list. The screening process looks for low-multiple stocks that don't carry the stigma of high risk or poor growth prospects. Thus, K&S has a reasonable debt load (21% debt/capital ratio) and estimated five-year annualized earnings growth of 14%. With a trailing P/E ratio of 5.0 and a forward P/E of 6.5, the company sits at the top of its industry's value screen.

After a painful lesson, management is committed to keeping that strong balance sheet. When the credit crunch crashed the global economy in 2008-2009, business dramatically decreased. The market assessed the company's heavy debt load and sent the stock down more than 80%. Management has responded by de-leveraging and strengthening the balance sheet, and now carries more cash than debt. It believes this strong cash position allows it "to continue making longer term investments in product development and in cost reduction activities throughout the semiconductor cycle."

Low multiples and a solid balance sheet are nothing without a strong business, of course. Since the turnaround in 2009, K&S has generated fantastic returns on investment on very strong margins. The company says it has a technology edge in its use of lower-cost copper wire, instead of gold, for wire bonding processes. If much of the industry converts to copper over the next several years, as management believes it will, this will be another strong driver.

Small companies are often reliant on one or two big customers, and that's case here. K&S has two customers that accounted for more than 10% of revenue in 2010. The biggie is Advance Semiconductor Engineering, which has fluctuated from 10% of sales in 2008 to 23% in 2010. Any trouble with ASE would certainly mean trouble for K&S's revenue.

The company is also affected by the global economy. Another big recession wouldn't endanger its very existence, as it did a few years ago, but it would cause customers to once again entrench and cut back on spending.

As always, I have a long-term outlook with this purchase, and I believe this small company has the potential to become much larger in the years to come. Because this is a fairly volatile small cap, I'm going to buy a half-position, or 2.5% of my total portfolio, for starters. The trade should go through on Monday.

We'll keep an eye on things and be ready for the next earnings report, currently scheduled for Aug. 4. Until then, please join me on the message boards and give me your thoughts on Kulicke & Soffa's long-term prospects.

This article is part of our Rising Star portfolio series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.