Cypress Semiconductors (CY)

I did not get a chance to present my stock at the last meeting, but I wanted to provide a brief explanation for my attraction to this company.

With oil prices above $120/bbl and gas prices at $4/gal coupled with a presidential election where candidates will be touting greener energies and a movement away from oil dependency, alternative energies seem like a great place to be invested.  The problem is that the industry is flooded with wannabes and only a few of the companies will actually survive.  I believe Cypress Semiconductors, yes a semiconductor company, is a safe way to play the alternative energy sector.

Cypress Semiconductors specializes in Programmable System-on-Chips (PSoC).  These little suckers are what make your mouse’s “click wheel” work so smoothly.  After several years of averaging right at $800M in revenues, they broke out in 2006 with over $1B and in 2007 then increased that 50% to $1.5B including nearly $400B in net income.

More importantly though, Cypress Semiconductors spun off SunPower Corp. (SPWR), a solar subsidiary, two years ago but they retained over 50% ownership.  SunPower makes photovoltaic cells and it’s stock has soared over the last year or so, although it’s currently down about 40% YTD do to it’s meteoric rise last year.  SunPower Corp. brought in $775M in revenue last year, up from $78M two years ago and has become profitable the last two years.  They recently gave sales guidance for 2008 of $1.3B, so they are definitely a growth stock in the solar industry.  As of the close of day on June 4, 2008 (as I write) SPWR is priced at $78.52 a share which gives it a $6.65B market cap.

Now remember that Cypress owns over 50% of SunPower which means that if Cypress’s semiconductor business unit was worth $0.00, it would still have a market cap of $3.325M based on it’s ownership of SunPower shares.  Cypress currently has a $4.18B market cap, which means that it’s semiconductor business is being valued at $800M.  Hard to imagine that a company bringing in over $1B in sales per year is only worth $800M!!  I think this is a good stock to own as it allows you to have exposure to two sectors and you have a very solid floor to limit your downside risk.

Joey