Haven't been talking about these, but things are going pretty well here..
When we come across a stock with a 25%+ free cash yield, we take a look. When we find that it is well positioned for growth, has announced an upcoming buyback, has stated business is improving off a seasonal bottom, and is simplifying its corporate structure (making a future buyout more likely), we feel like the cat that has swallowed the canary. We have written previously about ChipMOS (IMOS) but in light of its recent 4Q earnings report, and the positive outlook from Micron (MU), its 2nd-biggest customer, we thought it timely to revisit the story as this is likely the last opportunity that investors will have to buy shares at over a 50% discount to fair value.
In 2012, shares of ChipMOS more than doubled from $5.16 to $11.60. While the annual stock-price performance was exceptional, it was a bit of a wild ride as shares rocketed as high as $19 last March, before falling back as low as $8.25 before ending the year at $11.
We first got excited about ChipMOS in 2011 because it is a free cash flow machine. Since year-end 2009, the company has reduced net debt from $490 million to ZERO ($140 million came from one-time events), including $99 million of free cash flow in 2012, representing a trailing free cash flow yield in excess of 30%. We expect free cash flow in 2013 to exceed $85 million, with the y/y decline due to higher taxes, still representing a 25% FCF yield. [Read on here]