A Little Micro-Tech with Far Reach

In Monday’s Guide we pointed out the vast underweighting of small cap tech in the Russell Microcap Index.

The time is now to find some value in this sector. Finding an undervalued stock tied to a diverse company could reap a huge payoff in the second half of 2014.

inTest Corporation (NYSE – INTT - $3.93) offers this opportunity. The Company is a designer, manufacturer and marketer of temperature management products and ATE interface solutions, which are used by semiconductor manufacturers to perform final testing of integrated circuits (ICs) and wafers in the automotive, consumer electronics, defense/aerospace, energy, and telecommunications industries. Specific products include temperature management systems, manipulator and docking hardware products and customized interface solutions.

The stock trades on relatively low volume, about 15,000 shares per trading day over the last three months, which could drive volatility but potentially help drive moves to the upside. (And full disclaimer, the downside). The growth and revenue potential also provide a bright picture. A five year PEG ratio under 1 and forward P/E under 12 versus a trailing P/E over 13 are two metrics that point to this upside. Continued growth in the semiconductor industry puts the CAGR for inTest at nearly 5% over 2014 and 2015 according to consensus forecasts.

Plus with nearly half of the market cap in net cash, investors are basically paying 50 cents on the dollar for the business which trades at .5x sales, after accounting for the net cash figure.

Now is the time to get in to the small tech sector. We believe INTT is an undervalued play with exposure to the entire industry. In our view, a 25% jump this year is an easy hurdle to clear.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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