“By This Time Next Year … a Huge Winner” Tobin Smith’s ChangeWave

By Travis Johnson, Stock Gumshoe, April 5, 2008

This one was sent in by a reader earlier today, so I thought I’d quickly get out a note about … this will be shorter than your average Gumshoe writeup, but hopefully still packed with pithy comments and one interesting stock idea.

This is from Toby Smith for his $79 ChangeWave service, and it’s for a specialty chip maker.

Here’s the basics:

This is a company that has bet big on Blu-Ray and should benefit from pent up demand now that there is a single HD standard for DVDs and sales should pick up. He said the ChangeWave alliance, which is a market research group of people who get his newsletter for free in exchange for answering surveys, notes that 44% of people are planning to buy a Blu Ray player this year.

He compares the pent up demand to the iPhone, which helps to get your attention regarless of whether or not it’s relevant.

And he says the shares are picked by analysts to go back up to about $40 — but that he predicts a price of $75, which would get it back to it’s high from last year.

The PE is very low, according to Smith — trailing 10, forward PE of 8.

So what do we have here?

Well, I can’t give you a lot of backup research here, but it is a company I’ve been interested in since they fell from grace — one hates to buy a stock that has cratered so badly, but on the flip side the temptation to buy an outright bargain is difficult to resist. I’ve been fighting those two angels on my shoulders for several months without making a move.

This stock is, methinks,

Sigma Designs (SIGM)

They are indeed the dominant chipmaker for Blu Ray at the moment, though I don’t know how stable their leadership position will be as Blu Ray moves into the mainstream and dramatically picks up volume. Suppliers probably weren’t all that excited about competing for that business until recently, but I bet they are now.

Sigma’s other big capability is in IPTV chips — internet protocol television is making some headway in the US, but is really an international story as premium TV networks build out based on this system instead of on older cable or satellite paradigms. If countries need to build up infrastructure, why not just build up high speed internet and use IPTV to deliver television over that same network? That’s a simplification, of course.

So Sigma is the company that makes the specialty chips for these two video applications, Blu Ray and IPTV. They’re not the only one in either business, but they do have a good position. And they are being picked here by Tobin Smith — I know they’ve also been picked in the past by the Rule Breakers folks at the Motley Fool, though I don’t know at what price (or if they still like it).

Is it worth your money? I don’t know … but the shares are down at $23, a dramatic fall from $73, and they are profitable. Maybe worth investigating … and if you do so, please share.

And enjoy the rest of your weekend!

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