And on top of all that, KLA has a very safe and conservative balance sheet. The company has more than $2.5 billion in cash and marketable securities, nearly four times more than its debt, which checks in at less than $750 million. In fact, approximately a quarter of each share is pure cash.
Shareholder-friendly
Valuation front
With the S&P 500 trading at more than 17 times earnings — above its historical average of around 15.5 times earnings — anything under 15 times earnings is acceptable. KLA trades for 14 times earnings and roughly 3 times sales. TSM and Intel Corporation (NASDAQ:INTC) trade at 14 and 12 times earnings and 4.5 and 2.2 times sales, respectively.
I believe that all three companies are trading at a comfortable pricing territory. But KLA, more than the former two, has a great advantage of being the ultimate “picks and shovels” company. KLA-Tencor Corporation (NASDAQ:KLAC) doesn’t care which chipmaker wins the race, as long as it’s servicing its production lines. Hence, it has a reduced degree of business risk.
Looking ahead
The world is becoming faster and faster with each minute. The ultimate engines behind this progress are microprocessors, and the company to serve these chipmakers is KLA. With its fortress like balance sheet, cash flow generation, and shareholder friendliness – KLA-Tencor Corporation (NASDAQ:KLAC) is well-positioned to take the world one step closer to better, and much faster, chips.
The article 1 Prudent Play on the Chipmaker Market originally appeared on Fool.com and is written by Shmulik Karpf.
Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Intel Corporation (NASDAQ:INTC). The Motley Fool owns shares of Intel Corporation (NASDAQ:INTC). Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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