A Weak Quarter … But Nice Spike from Sad Patent Lawyers

Checking in on our wearable computing chip favorite

By Travis Johnson, Stock Gumshoe, February 11, 2014

Invensense (INVN), which in January I noted was a reasonable buy up to $20 or so but not one to load up on right before earnings (which were two weeks ago), reported pretty tepid earnings and forecast no immediate skyrocketing growth this year … that helped to keep a lid on the stock, down under $20 and even touching $18 briefly, so I should have bought some shares while I was thinking of it last week.

But I didn’t. And now some genuinely excellent news that not only really opens up future growth for Invensense and removes the overhang of potentially huge damages … but also materially improves results going forward by presumably slashing the fees Invensense was being charged by their lawyers. Invensense settled all pending patent lawsuits with STMicroelectronics (STM), their foe for years now and holder of a vast number of MEMS patents on micro sensors, accelerometers, and the like, and entered into a cross-licensing arrangement for each company’s patents. So now these two companies, two of the stronger in their space, can stop suing each other and start competing with innovation, speed to market, and cost — and though STM has a large entrenched advantage with many manufacturers, INVN keeps coming out with more advanced, smaller, more capable sensors for smart phones and wearable technology and the other little devices of modern life.

So now the stock is back up over $21 again. And it’s not going to hit the ball out of the park on earnings, probably, over the next couple months — but the future growth should continue to be excellent as long as they keep innovating and getting design wins. They’re quite dependent on Samsung’s smart phones right now, and were quite dependent on the Nintendo Wii before that, so there will continue to be lumpy quarters and probably sharp moves up and down — I’ll hopefully catch them on a future dip to add them to my portfolio, but I could also justify picking up small positions or nibbling even in this range up to $22 or so (more than that gets a bit tough, because they’re not likely to show ridiculous growth in the next few quarters and they’re already valued at 30X expected earnings). It appears the Motley Fool Supernova folks are also pushing this one, which has been a favored Motley Fool Rule Breakers stock pick in ...

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