LSI Logic joins a lengthening list of semiconductor firms to announce good news. Last Wednesday, Texas Instruments
If you follow semiconductor companies closely, you may remember that last year too much production resulted in an inventory buildup that had the Wall Street bears growling. In response, manufacturers cut production, and many of the stocks spent most of the year going down. Now, results are starting to improve, although many companies are still at a much lower level of sales than a year ago. It will be interesting to see whether the semiconductor business upturn continues or whether the increased production ends up filling warehouse shelves, like last year.
It's instructive to look at a chart of LSI Logic to compare the business outlook with the stock performance (no, I'm not a market technician). One of the worst things about investing in a semiconductor company is its volatility. No, wait -- one of the great things about investing in a semiconductor company is its volatility, provided you can use it to your advantage.
LSI Logic bottomed out last September on the bad news. Since then it has been a bit of a rocky ride. Nevertheless, LSI's share price nearly doubled before last Friday's boost in guidance. It is difficult to time your buy right at the bottom, but when most of the stocks in a sector are plummeting and there aren't any positive headlines to be found, it is usually a good time to buy if you can hold on and ignore any further price declines.
If you've seen the condition of my tennis shoes, you know that I'm a bit of a cheapskate, so, predictably, I don't think LSI Logic is now cheap enough to buy unless I could convince myself that its future prospects are brighter than its past. Its current price-to-sales ratio is close to the 10-year average -- an average that has been skewed higher by the bubble years. On the other hand, I wouldn't sell it if I already owned it.
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For more Foolish logic on semiconductor companies and related issues, check out:
- Should You Mess With Texas?
- National Semiconductor: Semirecovered?
- Intel Second-Quarter Business at High End of Expectations
- Chartered Updates Guidance for Second Quarter
- LSI Logic Chart
Dan Bloom owns stock in several semiconductor firms but doesn't own shares of any stock mentioned in this article.