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InterDigital (IDCC): 'Patent Machine' In Wireless

 September 03, 2010 02:01 PM

Based on its underlying fundamentals, one company you need to put at the top of your "Buy" list right now - InterDigital, Inc. (IDCC).

The company is a verifiable patent machine. It focuses exclusively on creating technologies for the wireless communications market.

In my view, no matter what happens to global GDP growth rates, the wireless market will continue to expand and evolve.

Meanwhile, the compamy's fundamentals are top-notch.

In the most recent quarter, sales rose 22% and net income jumped 32% to $35 million. Both easily beat expectations.

The company continues to innovate, now focusing on monetizing and adding patents related to LTE technology - the next frontier for wireless broadband technology.

Its pristine balance sheet sports $485.8 million in cash (or about $11 per share) and less than $1 million in debt.

Return on Equity - a favorite metric of Warren Buffett - checks-in at an eye-popping 84%. Put simply, InterDigital generates a boatload of profit with every dollar shareholders invest in the company.

Add it all up, and even management is optimistic about the future.

As CFO Scott McQuiken recently noted, "We expect growth in revenue in the third quarter versus a year ago, from a combination of strong sales at a number of our per-unit licensees, and new customer agreements entered into over the past year."

What's more, he backed up the optimistic talk by raising sales guidance for the third quarter. InterDigital now expects to increase sales by 17% to 20%, ahead of analysts' previous expectations.

It doesn't hurt, either, that the company's dirt-cheap. You can buy it for less than eight-times earnings. That's more than half off the price of the average stock in the S&P 500!

Economic uncertainty or not, this company's fundamentals - and cheap valuation - point to higher share prices ahead. Keep buying!

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