Volterra Semiconductor (VLTR): A chip stock that looks great today

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.

In Fremont, California, Volterra Semiconductor’s (VLTR) chips transform, regulate, deliver and monitor the power consumed by other chips. Big customers are Alcatel-Lucent, AMD, Cisco, Dell, HP, IBM, Juniper, Lenovo and Sony. The company has grown revenues every year of the past decade but earnings trends have been less reliable. In the latest quarter, revenues grew 56% to $34.2 million, while earnings mushroomed 278% to $0.34 per share. The after-tax profit margin was 24.7%. Technically, the chart is strong, with a short base at 24, but volume is light, averaging 340,000 shares per day, increases risk.

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

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.