In the chips with Analog Devices (ADI)

Filed under: Newsletters, Stocks to Buy, Technology

This post is part of a report entitled "Six-pack of technology favorites." You can read about the other top tech stock picks here.

"I think Wall Street has made a poor assessment of Analog Devices (NYSE: ADI)," says Paul McWilliams. Here's a look at the chip maker from his technology-focused newsletter, Next Inning.

"Analog Device's top line guidance came in a bit below Wall Street expectations. However, I think the problems are between the Hudson and East Rivers and not in Norwood, Massachusetts, the hometown of Analog.

"What Wall Street appears to be missing is that since ADI has sold off some of its lower profit business units, its seasonal sales patterns have changed. ADI is now again driven by industrial market sectors much more than it was even just last year.

"Therefore, its conservative guidance of flat to up 3% sequentially shouldn't have been a big surprise nor a cause for concern. As a matter of fact, with its minimal exposure to PC and consumer markets, I think flat to up 3% is pretty good.

"What Wall Street would be better to focus on are the operational improvements ADI has made. In its July quarter, ADI improved its pro forma operating margin to 26.5% from 26.2% last quarter and again reduced its inventory, which sits now at the lowest level we've seen since 2004.

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