NVIDA (NVDA): A 'graphic ' turnaround'

"To play the classic semiconductor-cycle (buying on a down-cycle and selling after an up-cycle), go with NVIDIA Corp. (NASDAQ: NVDA)," say Ron Rowland and Brandon Clay.

The editors of All Star Investor explain, "This graphic chip manufacturer stumbled earlier this year, but we find a compelling a turnaround story."

"This is a difficult environment for short-term investors. When the Dow jumps up 200 points one day, and crashes 200 points the next, it's hard to tell where to turn. Calling bottoms is nearly impossible

"In this market, we have become value investors -- seeking an inexpensive company that's almost-undiscovered by mainstream investors. 

"Technology is not typically known as a place for value. In fact, quite the opposite. Since the Tech crash, a shift has happened.  Certain semiconductors have been hammered over the past several years -- especially in the last 12 months.

"One of those, a leader in graphics chips, has been especially beaten down. NVIDIA fell from a 52-week high of $39.67 last October. The Santa Clara-based chip designer is now trading around $12.00 today. Did it really deserve the punishment the market delivered?  We don't think so.

"In 2007, Forbes declared NVIDIA the Company of the Year. Understanding the hyper-competitive tech market, Forbes praised NVDA's management for never becoming complacent. They bought out once-rival 3dfx in 2000 to strengthen their offering.  This helped NVIDIA dominate competitors like ATI.

"In February, they purchased Ageia Technologies for an undisclosed sum. This acquisition continues to position NVIDIA as the leader in the gaming graphics market. As an aside, the video gaming industry is nearly $30 billion strong, and NVIDIA is a key participant in this industry's success.

"NVDA recently released 2nd quarter earnings. The numbers were less than stellar as they lost $120.9 million or $0.22 per share after some charges. CEO Jen-Hsun Huang blamed a weak PC market and pricing problems.

"But one quarter does not make a company. NVIDIA is sitting on $1.62 billion in cash. That gives them almost $3 per share, with no debt. Moreover, the charges from last quarter are behind them.

"Instead of picking up another company to strengthen their position, they've decided to buy back $1 billion more shares of their own company -- a sign they sense their own value. We think it is prudent to now add a position in the stock."