The Best Tech Stock No One Talks About

 | May 05, 2014 | 12:00 PM EDT
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We live in a world where technology is all the buzz. Whether we are techies or old school, technology has become very mainstream the past several years. My wife and I receive text messages regularly from her 90-year-old grandmother. Our nephew, yet to turn 2 years old, knows his way around an Apple (AAPL) iPhone and iPad. CDs and DVDs are becoming relics, thanks to Netflix (NFLX) and Pandora (P).

When people talk about tech, they usually talk about Apple, Facebook (FB), Twitter (TWTR), Netflix, Google (GOOG), Amazon (AMZN) and the other new-age startups that allow us to dream big. You still hear, although less frequently, talk about Microsoft (MSFT), Intel (INTC) or Cisco Systems (CSCO), though those companies continue to provide the essential infrastructure that enables information to move from point A to B.

One hardly ever hears about the semiconductor maker Micron Technology (MU). Yet it's a name that is getting a lot of attention from some very sophisticated investors. Perhaps I should clarify: Until David Einhorn, at a conference, got on his megaphone and announced that Micron was his top investment idea, little mention was made of this company beyond the  inner circles.

Yet before Einhorn, an even more highly revered investor had amassed a huge stake in Micron. That was Seth Klarman of the Baupost Group, who has a more than billon-dollar bet on the company.

To be sure, while the mainstream media isn't talking much about Micron, Mr. Market has been watching it. Shares have nearly tripled over the past 52 weeks. nonetheless at the current price of $27, shares trade for 11x earnings -- a bargain valuation in tech land.

Micron is a manufacturer of DRAM products for storage and memory. To keep the description as non-technical as possible (for my benefit as well), Micron products are the essential components that allow for enhanced and increased storage and memory in computing products. Because of products that Micron makes, the iPhone 5 is much faster and more capable than the iPhone 4.

As society becomes more digitized, the need for even greater storage and memory capacity is going to mushroom for years to come. Micron is one of a few names that focuses on this essential part of the technology sector. Micron holds an abundance of patents, and its products go beyond computing into areas such as automotive and consumer products.

The current valuation is $28 billion, plus $2 billion in net debt. Over the past three years, free cash flow has moved from nearly zero to over $600 million for the year ended Aug. 29, 2013. Capital expenditures have declined from $2.5 billion to $1.2 billion over that time. In the coming years, memory pricing is supposed to really tighten, and that should swell profits while capital expenditure continues to decline. For the first two quarters of fiscal 2014, free cash flow has exceeded $1.8 billion.

And in case you think this company is another fly-by-night Silicon Valley dream, consider that Micron has been around since 1987. Even more surprising is that its headquarters are in a tech hotbed: Boise, Idaho.

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