Today it was announced that Intel (INTC) agreed to buy McAfee (MFE) for $7.68 billion. In a series of articles that started on March 20, 2010 (article link), the New Low Observer team bubbled with excitement over the fact that the chip sector, as broad as it is, was severely undervalued. On March 20th we said:
"...it is noted that the majority of the companies that pay a dividend are related to the chip sector. Clustering of companies in a specific industry may indicate that the entire sector is undervalued."
On March 22, 2010 (article link), the New Low team answered a reader question about Applied Material (AMAT). In that article, titled "Applied Materials and the Chip Sector Should Be on Your Radar," we said:
"Our opinion is that the chip sector is ripe for mergers and acquisitions."
Finally, on March 22, 2010 (article link), the New Low team, prompted by the purchase of Techwell Corp. (TWLL) by Intersil Corp. (ISIL), pointed out specific reasons why we thought that the chip sector was ripe for mergers, acquisitions and/or extremely undervalued in the following quote:
"...the fact that the purchase was done with cash is a testament to the fact that the chip manufacturers have abundant cash or are under priced and undervalued."
We closed our March 22, 2010 (article link) article with a quote that we hope ever reader of our website will put to the test.
"Once it can be verified that companies in a specific industry are undervalued, you can rest assured that the mergers and acquisitions will begin. The fact that cash is being used to buy up companies is the final nail in the coffin on the theory of an undervalued sector."
Since we started the New Low Observer, we have been able to identify the water sector, the biotech/pharma sector, the medical device sector and now the chip sector as undervalued before acquisitions or substantial price gains occurred. It should be noted that we don't have any special skills, just the willingness to carefully observe and sometimes buy companies that have fallen to a new low. Get the research going for the companies that are part of the chip sector, and never chase a stock that has a rising price.