Three San Jose Small Cap Stocks Design Their Way Out of the Recession

One thing leads to another.

When I was youngster in retail brokerage, I learned an important principle; the opening of a branch in a new town means new money. Some were bedroom communities where the nouveau riche and high income individual investors were beginning to settle down, but the majority of branches were opened where businesses were beginning to grow and prosper like the Silicon Valley back in the 80s.

So a news release caught my eye: Scottrade (privately held), the online investment firm was opening a new office in San Jose, California next Tuesday. The San Jose branch office is the ninth Scottrade branch office to open in California in 2009 (one of which is in Silicon Valley).

So, what's going on in San Jose? Plenty. I found three Small Cap stocks in the semiconductor and system software industries that are designing their way out of the recession.

Now venture capital to the side, banks, pension funds and wholesale brokers have always been very fond of companies in this neck of the woods because of the possible ROI, so a large stock position held by institutions is not uncommon. With that said however, when it tops 50% of the shares out: there's big money invested for a reason; returns.

I found three 'pure play' small caps (it's hard to be sentimental over circuits and such unless you were one of the Fairchild Eight) that I like for investment.

The DJ US Semiconductors Index 

The first two are in the Semiconductor, Integrated Circuits Industry. I like the current trading price of $2 of Magma Design Automation (LAVA) http://www.magma-da.com/ on the Nasdaq. Magma has been around since 1977. 

Magma has a thousand employees and its software enables chip designers to reduce the time it takes to design and produce integrated circuits used in the communications, computing, consumer electronics, networking, and semiconductor industries. The Company makes money from its licenses sold to semiconductor manufacturers and electronic products companies worldwide that in turn use Magma's software to create

high-performance chips required in cellular telephones, electronic games, WiFi, MP3 players, DVD/digital video, networking, automotive electronics and other electronic applications. I also lie this; Magma's EDA software enables the world's top chip companies to "Design Ahead of the Curve" while reducing design time and costs. Now that's a motto. Next Wednesday, Magma will announce its Q4 and FYE (May 3^rd) after Nasdaq trading closes. Should be interesting.

Magma has a market cap of $91.39M and its 52-week high in May of 2008 was $7.67.

At $2, its head of its 5-day and 200-day moving average. Magma's trailing twelve months revenue is $214M and its trailing twelve months revenue per share is $5.29. Its shares out and float are near-parity and the percentage of stock held by institutions is 53.40%.

In the System Software Industry trading on the Nasdaq in the $5 range, I like Cadence Design Systems (CDNS) http://www.cadence.com/.

With 4,900 employees, Cadence is a long-timer like Magma, with Cadence coming into being in 1983. Customers use Cadence software and hardware, methodologies, and services to design and verify advanced semiconductors, consumer electronics, networking and telecommunications equipment, and computer systems.

Cadence has a market cap of $1.55B and is far off its 52-week high of $11.73 last May. It's close to its 50-day moving average and approximately $0.85 over its 200-day moving average. Cadence has a trailing twelve months revenue of $974M with trailing twelve months revenues per share of $3.86. Its shares out and float ratio is near-parity and the percentage of Cadence stock held by institutions is 77%.

Finally, I like Atmel Corp., (ATML) http://www.atmel.com/ trading on the Nasdaq in the $4 range. If you look at the chart below, it seems that as the market comes back, ATML could make a buyside breakthrough to the next level of trading.

ATML, like the previous two stocks is not a newcomer, being established in 1984. It now employs 6,400. Yesterday, ATML announced today the availability of a new bit microcontroller for automotive LIN networking applications.

All three of the companies mentioned here are literally designing their way out of the recession.

ATML has one of the industry's broadest intellectual property (IP) technology portfolios. The company operates in four segments: Microcontrollers, Application Specific Integrated Circuit (ASIC), Nonvolatile Memories, and RF and Automotive and markets a range of semiconductor integrated circuits (IC) products including: microcontrollers, logic, mixed-signal, nonvolatile memory, and radio frequency (RF) components.

ATML has a market cap of $1.79B and is near its 52-week high of $4.69 back in November of 2008. It is trading above its 50-day and 200-day moving average and has trailing twelve months revenues of $1.43B with trailing twelve months revenues per share of $3.18. Its shares out versus float ratio is close enough to parity and the percentage of stock held by institutions is 50.40%.