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Tech’s Overlooked Winners

Forget big-name tech, Cramer said Tuesday. The real money right now is in smaller companies.

Everybody thinks first of Apple , Google and Microsoft when the sector is mentioned. But that ignores other lesser-known but similarly profitable firms, specifically in semiconductors. That industry is showing bullish signs of a turn, and Cramer wants people to take notice.

Just last week he highlighted Taiwan Semiconductor . Growing demand for chips is boosting TSM’s business enough to warrant new guidance to the upside. Well, that trend, due largely to China’s 3G wireless build-out, is reaching other companies as well, such as Xilinx. Back on March 3, Xilinx surprised analysts with a better-than-expected fourth-quarter outlook for the same reason as Taiwan Semi: increased orders. And with inventories shrinking, which gives rise to higher prices, more good news should be on the way.

Xilinx controls 51% of the $3.5 billion market in programmable logic devices, or PLDs. Unlike the other kind of logic microchips, which are application specific, customers can reuse and reprogram PLDs at will. You’ll find them in high-end systems like routers, switches, base stations, servers, storage systems, large medical equipment, radar and more. This adaptability is a cost-effective benefit for Xilinx’s customers. They buy more to meet various needs and save money in the long run. That’s one of the reasons Cramer likes this company so much. He sees it as part of a long-term, secular trend away from one chip with limited uses and toward the other – Xilinx’s multiuse PLDs.

It looks like the semiconductors sector’s bottom is in, and it’s one that Cramer thinks is much more attractive than the last, which happened in 2002. Back then Xilinx plunged to $13.50 from $98.31 in 2000 and was trading at 27.9 times earnings. Now the stock fetches $19.37 a share but trades at just 15 times earnings. So the market values Xilinx at about half its 2002 value despite the company’s much stronger position today.

That’s a mistake, Cramer said. He expects prices to climb, sales to increase and Xilinx to go higher.





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