Two Stocks That Are Too Cheap

OK, now that ‘cliff-mania’ has subsided somewhat, it’s time to get back to basics.  In other words, let’s identify some cheap stocks that look poised to move much higher. Even with yesterday’s monster move, there are still some great plays out there.

One sector that took it on the chin last year but looks like it is ready to rock is the semiconductor industry.  This is very much a cyclical business, as revenue can be tied to an overall uptick in economic expansion and growth, and it was not the place to be in 2012. Even the bellwether, Intel (NYSE – INTC - $21.34), is hovering around the $20 range, not too far off the 52-week low of $19.23 with a FY12E P/E under 10.  The slowing PC business and slower manufacturing abroad had an impact on INTC and many of the semi businesses’ customers last year. That is expected to change for some of these players in 2013, however.

Shifting business trends and cheap stocks should change sentiment in semis to at least “semi-bullish” and later bullish, especially with certain semi capital equipment providers. Here are 2 for you daily goodie bag:

Photronics Inc. (NASDAQ – PLAB - $6.04) is a manufacturer and supplier of photomasks which are used in both the semiconductor, flat panel displays.  Our channel check sin the flat panel space indicate that orders should be big in the first half of the year for the industry in general, which plays to PLAB’s strength.

Founded in 1969, PLAB has been around “forever” and has a FY13E P/E of 15.0 compared to an 18.8 average for some of its peers.  From a technical perspective, both the long term and short term indicators are on the plus side.  EPS is expected to really see a big upward swing later this year.

Obviously, we are not alone in liking the stock. Hedgie player Steelhead Partners filed a 13G stating it now owns 6.4% of the stock. That should give it a boost today. Looking ahead, we see the stock climbing back to the 52-week high it hit back in February 2012 of $7.70 in the coming weeks.

Another oldie but goodie is Amkor Technology Inc. (NASDAQ – AMKR - $4.44), which was founded in 1968 and provides semiconductor packaging and test services.  With revenue of over $2.7 billion this small cap stock is no small player. Moreover, the valuation here is arguably even more compelling than with the price/revenue P/E afforded PLAB.

EPS is expected to jump by more than 50% from 2012 to 2013. Estimates call for $0.39 in 2012 and $0.61 on 2013, representing a P/E below 8x for next year! The chart is trending higher as the stock has climbed steadily from a floor of $3.65 in November and should continue its ascent.  Look for a $6.00 target in the not too distant future.

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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