Grab Your Share Of This $169 Million Cash Hoard

| June 24, 2010 | 0 Comments

Apple fans are jumping out of their skins with excitement today.  It’s like Christmas, Hanukkah, and your birthday all rolled into one.  Today is the official release of the Apple iPhone 4.

Millions around the world are scrambling to get their hands on the latest and greatest version of the iPhone.

According to Apple, demand for the iPhone 4 is four to ten times greater than what it was for the iPhone 3GS.  And that’s saying a lot.  The company sold over a million of those phones in just the first three days.

But iPhones aren’t the only smartphones taking the world by storm.

According to market researcher, Gartner, a mind boggling 54.3 million smartphones were sold worldwide in the first quarter.  That’s a 49% increase over the prior quarter.

Demand for all kinds of smartphones is clearly accelerating.

The smartphone revolution is a huge money maker for handset manufacturers.  Apple, Nokia, Samsung, and many others are raking in the dough.

But it’s also turning into a boon for the telecom equipment makers and their suppliers.

You see, the surge in smartphone usage is wreaking havoc on wireless networks.  With so many smartphone users streaming video, using social networking sites, and trading photos, they’re literally tapping out existing broadband networks.

As a result, wireless carriers are being forced to step up investments in the network.  They have to increase capacity and speed to keep customers happy.  In fact, telecom companies are expected to spend a whopping $57.8 billion this year.

So, how can we profit from this trend?

The obvious way is to buy shares of leading telecom equipment makers.  Firms like Cisco Systems (CSCO), Alcatel-Lucent (ALU), and Juniper Networks (JNPR) will certainly benefit from this trend.

However, if you’re looking for a more exciting and possibly more profitable way to play this trend, I have just the stock for you. Introducing, Oplink Communications (OPLK).

OPLK is a leading provider of optical networking components and subsystems.  I know it sounds complicated.  Here’s what you really need to know.

This company’s products boost the capacity, speed, and performance of wireless networks.

OPLK sells products to nearly 500 telecom equipment makers worldwide.  Their top customers are Tellabs (TLAB) and Hua Wei Technologies.  Hua Wei is one of the top telecom equipment makers in China.

OPLK has several advantages over the competition.

They’re the number one supplier of passive optical components.

With better than 35% market share, OPLK is the clear leader in this space.  This is a huge advantage because customers tend to prefer doing business with the market leader.

The company keeps manufacturing costs low.

OPLK recently moved their manufacturing facilities to China.  This move has dramatically lowered the company’s manufacturing costs and boosted profit margins.  It’s an important advantage because their markets are very price competitive.

And OPLK offers one-stop-shop solutions.

In other words, the company provides custom design and manufacturing services to meet customers’ specific needs.  Customers like this value added service.  It saves them time and money on component assembly and testing.

Because of these advantages, OPLK is growing rapidly.

Last year the company earned $0.52 per share.  This year analysts are forecasting earnings of $0.90 per share.  That’s year over year growth of 73%!

And I think there’s upside to this forecast.

OPLK has been beating analysts’ estimates on a regular basis.  They’ve topped estimates in four straight quarters.  And they just implemented a $40 million stock buyback program.  This will help boost earnings per share going forward.

Despite the strong growth, these shares are incredibly cheap!

At a recent price of $14.30, the shares are trading at just 15.9x the current year estimate.  That’s a low P/E for a company expected to grow earnings 30% a year over the next five years.

In other words, the company has a PEG ratio of just 0.53.  That means the shares are trading at a 47% discount to the company’s projected growth rate.

Clearly OPLK is attractive on a P/E and PEG ratio basis.  But the shares are really an even better bargain than those indicators show.

Here’s why…

The market is valuing the entire company at $14.30 per share.  But the company is sitting on a cash hoard of $169.8 million.  That works out to $8.09 per share.

Simply subtract the $8.09 in cash from the market price of $14.30.

The result is illuminating.

You find the market is valuing OPLK’s business operation at just $6.21 per share.  In other words, you’re getting the entire company (the factory, equipment, technology, inventory, etc.) at a 57% discount to the market price.

This is just too good a value to pass up.  Take a closer look at OPLK for your own portfolio.  You won’t find too many fast growing companies trading at discounts like this.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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