As a kid in the early ‘80s, microchips became a big part of my life.
I remember one of Dad’s workmates building the first video game I ever saw. A crude black and white version of ping-pong, plugged into the television set.
But things advanced fast.
We were among the first families in our small town to buy a personal computer. A System 80, assembled by Dick Smith Electronics, a clone of the successful TRS-80 in the US.
If you have any doubts on how far microprocessors have progressed, consider misspent hours of my childhood playing Sea Dragon on this machine:
Sea Dragon on the System 80. Source: Classic Computers
These days, the games have graphics that resemble real life. And as I watch my son playing Forza Horizon on his Xbox, I can’t help feel for this spoilt generation. They will never need to plumb the depths of their imagination to truly enjoy Sea Dragon, circa 1982.
As an investor, I was slow to pick microchip stocks. Typically, they don’t pass my analysis approach. My first aim is to protect capital. Then achieve growth. Then income.
Protecting capital means carefully considering the downside.
- What assets does the business own?
- How well is their revenue protected from competition?
- What if the company’s market changes overnight?
- How much do I need to pay for earnings and actual book value?
Yet, value investors need not miss exciting opportunities. And, in this case, we did not.
Last September, I came across this Company.
This stock has delivered exactly what we expected. Great growth. It is up 50% since we recommended it (including the small dividend). And before the recent tech drawdown, it was actually up around 67%.
So the question today is this: Could this Company grow further on the back of the current chip shortage we face?
And are there any other microprocessor stocks we need to be looking at?
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