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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Tower Semiconductor

January 28th 2015

Tower Semiconductor

Nasdaq Symbol: TSEM

Industry: Semiconductors

Price as of 1/28/15: $15.48


It's the last week of January and the major averages continue to spin their wheels. Last week's featured stock, Boeing is up 6% today to a new 52 week high following strong earnings. Apple is doing even better up 7% following earnings, but the number of companies trading higher after earnings are few and far between. A perfect example is American Airlines. The company blew out earnings, trades for 5 times 2015 earnings and will save as much as $5 billion dollars this year due to lower oil prices and yet the stock traded lower after their earning's report.  The internals for the overall market are certainly pointing to a bigger correction down the road. The price of oil is acting like its going lower which is not good news for oil stocks for the coming quarters. Avoiding that sector may be a wise move in the short term. Going forward picking stocks will get trickier. In the short term it's best to stick with the blue chip defensive stocks or companies raising guidance. The techs overall have been holding up well. Semiconductors like Micron and Intel have come under pressure in the short term, but still look good longer term. This week we'll highlight a small cap chip company based in Israel. The stock of the week is Tower Semiconductor. Tower Semiconductor which also goes by Tower Jazz has been on a roll so far in 2015 up 19% after doubling in 2014. The company is an independent semiconductor foundry producer with 6 manufacturing facilities over 3 continents producing analog intensive mixed-signal semiconductor devices for such companies as Mircon, Avago, Fairchild Semiconductor, International Rectifier, Intersil, Marvell, Raytheon, RF Micro Devices, Samsung, Semtech, Skyworks, Teledyne Scientific and Imaging, Texas Instruments and numerous others. Even though Tower's stock has performed extremely well, the fundamentals continue to improve. Even after more than doubling in the last year, Tower still trades for just 7 times earnings and less than one times sales. Investors looking for a small cap growth stock with a bright future may want to take a look at Tower Semi.

Tower Semiconductor will not report earnings until February 23rd, but back in November the company reported third quarter revenues of $226 million, up 70% year over year. Revenue for the first nine month period of the year came in at $593 million, up 60% year over year. Organic top 10 customers business growth year-to-date of approximately 34% over 2013 with third quarter top 10 customers at 23% quarter over quarter growth. EBITDA earnings of $37 million for the third quarter of 2014 as compared to $21 million in the third quarter 2013 and $33 million in the prior quarter. End of quarter cash balance of $195 million with $47 million net cash from operations shows the company is moving from a company that constantly lost money to a company that should consistently make money. Management has done an excellent job of refinancing their $111 million of bank debt with a long term loans substantially reducing principal payments for 2015 and 2016 from $101 million to just $24 million.  

To start the New Year a small analyst firm, Chardan made Jazz Semiconductor one of their top technology picks for 2015. The analyst mentioned that amidst a strengthening semiconductor sector, Towerjazz has capitalized on its position as a premier specialty foundry with marquee customer lists in smartphone, RF, power mgmt and image sensor ICs. With the recent joint venture with Panasonic that gives TSEM access to Panasonic's fabs coupled with the closure of its Nishiwaki fab, they believe Tower Semi is poised to post strong revenue and earnings growth going forward. With more and more analog IDMs looking to go fabless or fab lite, they believe Tower Semi is a direct beneficiary of this trend. A favorable industry trend with low valuations makes Tower Semi a good pick for 2015.