Sure, everyone should have been in Apple (AAPL) . Yes, it would have been terrific to take the other side of the Panera Bread (PNRA) trade when Stifel took it to a sell yesterday. No doubt anyone would have loved to have been buying Caterpillar (CAT) when the stock dropped on the forecast cut -- even as, we later found out, it was the company just being prudent and things actually seem to have bottomed out. (AAPL and PNRA are both holdings of Action Alerts PLUS.)
But the big investment, the one that you really wanted to have made, would have been to buy a so-so, also-ran tech stock with a name that sounds like a central casting semiconductor company: Linear Technology (LLTC) . That's because midday, we discovered that Analog Devices (ADI) agreed to acquire the company for $14.8 billion in stock and cash, causing the stock to leap from $48 to $62 in a single session.
When I first heard the trading halt, I said to myself, "Oh right, Linear, they've been kicking around for ages -- basically trading at the same price it sold for 15 years ago." This maker of chips that go into all sorts of devices hasn't done much of anything for so long. It has just been sitting there, like so many other semi stocks, marking time, doing its thing, laboring in the vineyards of consumer products -- like notebooks and personal computers -- going nowhere, fast.
But then I saw that not only did Linear go up well in excess of what was supposed to be a $60 cash and stock bid, but that the stock of the acquirer, Analog, soared more than 10%, too. I decided to take a look, to see if I could have spotted why this company could be so valuable to anyone -- let alone ADI.
So I went back to the last public narrative about the company, the April conference call, and lo and behold, it was all there to be seen: A fabulous story, and one that, even while many had given up on it, had become more relevant than ever in its long history.
You see Linear seems, in retrospect, to have seen it all coming. The old Linear was, indeed, a personal computer and consumer products semiconductor company that had, indeed, gone fallow by the gutting of every single device related to that category.
But the new LLTC that you were getting for the same price as the old one? Unbelievably, you could not have invented a better company -- and therefore a better stock -- for this moment.
First of all, all of that consumer folderol now amounts to mid-single-digits of the company's book of business. Most of its product has totally different applications: 44% industrial, 24% transport, and 18% in high-growth communications. That doesn't leave much room for the stuff that most people thought they made.
LLTC is the perfect internet of things (IoT) play, but nobody seemed to care until Analog struck, yesterday. We should have cared. The last quarter was pretty much perfect: excellent revenue growth -- 4% better than the previous quarter; nicely improving gross margins -- from 75% to 76%; excellent guidance and a perfect balance sheet, laden with $1.36 billion in cash.
And no debt.
It gets better. We know that the industry is becoming more and more digitized, and when you hear that term, it is likely that Linear is making the chips. In fact, it competes with Texas Instruments (TXN) , which is one of the hottest stocks in semiconductor-land, right now.
Most importantly, though, is its transportation business, where it is the leader in BMS. Don't know what that is? I didn't. It's battery management systems for electric cars. Specifically, Linear is the brains behind the failsafe mechanisms that keep your electric car from just stopping because the battery died.
Don't ask how; it's proprietary and they are by far the leader. That's why they dominate in the 300,000 electric vehicle market in China. It may be small, but it will double this year and probably double and double again -- and LLTC owns that market.
In other words, you could not have created a more ideal stock for this market. Then why didn't people see it? Because there are so many chip companies that do so many different things, and because only a small niche of people knew that Linear had reinvented itself -- and an even smaller group knew it had done so successfully. One of that group in the know is the management of Analog Devices.
So, be like me: Kick yourself. But remember, there are dozens more like this stock in the tech world, ripe for consolidation. It's just that no one really cares, because it's been so long since they've done anything that we wonder whether they really could be any good.
One word answer: Yes.