Power Integrations (POWI): Great looking chip stock

By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report

From Cabot Wealth Advisory 3/8/10 Sign up for free Cabot Wealth Advisory e-newsletter

There are six chip stocks that look great today. All are U.S. companies, all enjoy growing sales and earnings now, and all expect continued growth in the year ahead.

Power Integrations (POWI) of San Jose, California, is the leading manufacturer of high-voltage analog chips used in energy-efficient power conversion. It serves a wide range of end-markets, but notably fast growing is the LED market, where Cree is thriving. The company has grown revenues every year of the past decade and it’s grown earnings every year but one (2008).

Power Integrations stayed profitable through 2008 and 2009. In the latest quarter, revenues climbed 56% to $66.1 million, while earnings spiked 163% to $0.42 per share. The after-tax profit margin was 18.4%. Technically, POWI is solidly positive, building a little base between 38 and 39, but trading volume is a little light, averaging 250,000 shares a day.

The other five good looking chip stocks are Atheros Communications (ATHR), Cree Inc. (CREE), NetLogic Microsystems (NETL), Skyworks Solutions (SWKS) and Volterra Semiconductor (VLTR).

Of the six, my favorites are Atheros, Cree and NetLogic, because of a combination of fundamental and technical factors.

But I know that less experienced investors will be attracted to Skyworks and Volterra, because their stocks are lower-priced. Trouble is, those lower prices bring greater risk. Whatever you choose, be sure you manage risk appropriately, by buying on dips, and by keeping losses small.

Tim LuttsTimothy Lutts

President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.