Netgear, maker of modems, routers and wireless adapters, is “the most unexpectedly sexy tech stock you’ll ever meet," Cramer said Friday.
While there used to be many companies selling switches and wireless routers, Cramer noted that there’s been an “incredible amount” of consolidation in the space. With the Great Recession, many of Netgear’s competitors left the space or went out of business. The San Jose, Calif.-based company is now one of three main businesses selling networking products for home use. Netgear, with a 30-percent share, recently overtook Cisco Systems’ number-one spot in the retail home-networking market.
It seems Netgear’s competition continues to dwindle. On the company’s most recent conference call on July 22, CEO Patrick Lo said the market has been reduced to two players: Netgear and Cisco’s Linksys product. Lo added that this trend is growing around the world, and he expects it to continue.
As Netgear continues to have an edge in the home-networking business, Cramer said it’s branching out by making media players. The product connects to your TV and can display a variety of content from your computer or other devices connected to your home network.
Netgear is also expanding services for businesses. It is making high-end network-attached storage and security products for small and medium-sized businesses. The company is also selling gateways to cable companies that provide broadband services. In all, Netgear launched roughly 20 new products last year and introduced more than two dozen new products in 2010.
Although the stock is just two points off its 52-week high, Cramer thinks the risk-reward is good, as Netgear is trading at only 13 times next year’s earnings estimates. That’s inexpensive given the 18-percent long-term growth rate. Plus, when you back out the $6 of net cash per share, NTGR is really trading at a mere 10 multiple.
“Seems to cheap to me,” exclaimed Cramer, recommending NTGR as a speculative play.
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