Daily Gains Letter

Semiconductor Play for Portfolio Growth, Diversification, and Income

By for Daily Gains Letter | Feb 27, 2013

















270213_DL_zulfiqarWhen you are building a portfolio and saving for retirement, a financial planner usually suggests that you diversify as much as you can—to protect your capital and reduce your risk. The last thing investors want when they are saving for retirement is to lose what they have.

When you diversify, your risk decreases. Even if you are investing in the same industry, investing in different companies reduces your risk significantly.

One way to do this is to look for companies that are operating in multiple regions and industries. Why? This is simple: if one country is witnessing economic slowdown, the other country might be performing well. The same goes for industries—some industries might excel at times of economic growth, and others might suffer.

STMicroelectronics N.V. (NYSE/STM) is a perfect example of this kind of company—well diversified in different regions around the world and in multiple industries. This company is based in Switzerland, and it has research and development centers in 10 countries, 12 manufacturing sites, and global exposure with sales offices around the world. (Source: STMicroelectronics N.V. web site, last accessed February 25, 2013.)

STMicroelectronics N.V. (STM) is one of the largest semiconductor companies and has products for different industries. The company is a leader in serving integrated device manufacturers (IDM) with products, including microcontrollers, smartcard products, standard commodity components, micro-electro-mechanical systems and advanced analog products, application-specific integrated circuits, and application-specific standard products for analog, digital, and mixed-signal applications. STM also offers subsystems and modules for the telecommunications, automotive, and industrial markets, comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment. (Source: Yahoo! Finance, last accessed February 25, 2013.)

Looking into its financial statements, STM holds almost $2.5 billion in cash, with only $1.3 billion in total debt. The book value of STM currently stands at $7.01 per share. (Source: Ibid.)

In the fourth quarter of 2012, the company’s adjusted operating loss decreased $133 million, compared to $297 million in the first quarter of 2012—a 55% reduction over the course of the year. (Source: “ST-Ericsson reports fourth quarter 2012 financial results,” Reuters, January 30, 2013, last accessed February 26, 2013.)

Another interesting thing to note is that STM currently has a forward dividend yield of 4.1% with a five-year average dividend yield of 3.6%—the majority of the companies in the technology sector do not give any dividends.

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Chart courtesy of www.StockCharts.com

From a technical analysis perspective, STM has a three-month average volume of 1.5 million shares a day—fairly liquid. Since July 2012, the company’s stock prices have been generally trending higher. Prior to that, from mid-March to mid-May, the company experienced a drop of more than 50%, which was mainly because of the losses; STM is now looking to recover.

STM’s stock prices have been gaining momentum and bullish sentiment is pouring in. Both the 200-day moving average (MA) and 50-day MA are trading below the stock’s price, suggesting that it may continue its move to the upside.

Investors looking for diversification, growth, and income can take advantage of companies like STM. When saving for retirement, your best bet is to reduce your risk and not let one downturn in the stock market make a huge dent in your portfolio.

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