4-Star Stocks Poised to Pop: Analog Devices

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, analog chip maker Analog Devices (NYS: ADI) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Analog Devices' and see what CAPS investors are saying about the stock right now.

Analog Devices facts

Headquarters (Founded)Norwood, Mass. (1965)
Market Cap$9.4 billion
IndustrySemiconductors
Trailing-12-Month Revenue$3 billion
Management

CEO Jerald Fishman (since 1996)

CFO David Zinsner (since 2009)

Return on Equity (Average, Past 3 Years)19.8%
Cash/Debt$3.4 billion / $906.9 million
Dividend Yield3.2%
Competitors

NXP Semiconductors (NAS: NXPI)

STMicroelectronics (NYS: STM)

Texas Instruments (NYS: TXN)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 93% of the 401 members who have rated Analog Devices believe the stock will outperform the S&P 500 going forward. These bulls include polterziets and MagicDiligence.

A couple of months ago, polterziets listed several of Analog Devices' positives: "Low valuation, strong growth, strong margins, dividend growth, increasing need for chips in everyday devices, healthy balance sheet compared to competitors."

In fact, Analog Devices boasts a robust three-year average operating margin of 27%. That's much higher than that of rivals STMicro (0.6%) and Texas Instruments (14.9%), let alone NXP's average negative margin of 0.4%.

CAPS member MagicDiligence elaborates on the Analog Devices bull case:

I believe the future for analog chip demand is very bright. Smart-phones, tablets, even laptop computers now carry half a dozen or more sensors. Analog chips are important in efficient power management, a huge concern for mobile devices. ... Automobiles continue to be outfitted with ever more sophisticated systems (think park assist, lane assist, blind spot detect -- all of which need sensors to function). There should be a significant amount of demand going forward. 2010 and 2011's big step up over 2008 levels probably shouldn't be used as a barometer, as a lot of pent-up demand from a poor 2009 was realized. But there is no reason ADI cannot grow at 10-15% rates over the next few years.

Given this, and assigning a reasonable, historical multiple on the stock, my price target is $49.

What do you think about Analog Devices, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Texas Instruments. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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