Mark Perkins sends: I was looking for hidden gems days ago and I came across Himax Technologies (HIMX), a maker of semiconductors for flat panel displays. After taking a brief look at them, I was pretty excited about it and tucked the stock away to analyze later. Since then it is up about 14%. While semiconductor companies historically aren’t the best business for long-term shareholder return, interesting things are going on in the market for flat panel displays (as we’ve seen from Syntax-Brillian - BRLC), and with the fast growth in this segment there looks to be money to be made. When you’re looking for an undervalued stock, it is reassuring to see a company announce that they are going to buy back nearly 5% of outstanding shares. It is even better when you run a screen days later over thousands of stocks and only one stock pops up - Himax. That criteria for that screen was:

PEG (price to earnings/growth rate) < 1.00
Net Margin > 1
Current Ratio > 1
Last EPS Surprise (%) > 5

Again, hello Himax. PEG = .43, net income margin = 8%, current ratio = 2.8, last EPS surprise = 37%. Ok, you say what is the point of getting sucked into a mediocre commodity type business like semiconductors? Aren’t there great companies selling for GREAT prices out there? Those types of home-runs only come around so often. There are many more good companies at great prices, especially in the small-cap arena. It is still wise to be cautious. What is to like about this company?

Net revenue grew 37% year-over-year for the third quarter. Third quarter gross margin increased to 22.5%, the fourth consecutive quarter of improvement. Net income for 2006 grew 22% year over year and they raised future estimates. Here is some potentially good news from the conference call.

“On October 12, we announced plans to spin-off our TV and monitor chipset operation, which will be named Himax Media Solutions, Inc., a wholly-owned subsidiary of Himax Taiwan upon its establishment. Himax Media Solutions, Inc. will be focusing on expanding market share in the global TV and monitor chipset market opportunity. We have identified certain strategic investors and have planned to invite them to partner with us in the future. We’ve already had a good working relationship with these partners, with our chips designed into several of their LCD TV and monitor projects. We believe this new company structure will allow us to better focus our resources for the global TV and monitor chipset market opportunity.”

Himax ended the last quarter with $135 million in net cash on the balance sheet; this for a $860 million company in a market growing at double digits that trades for 9.13x earnings. While HIMX might not be the best long-term play, near term the stock looks appealing with upside to growth estimates and a cheap valuation.

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