Anadigics: High risk buy


by Paul McWilliams, editor Next Inning

I do on occasion buy some very high risk investments; there is a direct correlation with risk and potential return, and in the case of Anadigics (ANAD), I think the balance is favorable.

Let's put this in perspective. I emphasize risk frequently. The reason I do this is because I have a large number of retail readers, and I assume many of those retail investors are not familiar with assessing risk.

Any given industry sector presents a higher risk than the broad market, such as investing in a whole market index fund. The tech sector is even more risky than most of the other industry sectors.

On both a relative and absolute basis a company like ANAD that is operating at a loss presents a high risk.

Some investors can accept a lot of risk and others not so much. My aggregate position in ANAD is small relative to my portfolio and, as such, I can accept the risk of even a 100% loss.

I think the odds of that are very low, but I don't discount the odds of competitive threats or an execution failure by ANAD.

Since I think aggregate demand for RF (radio frequency) semiconductors will continue to rise along with mobile electronics that must use RF semiconductors to make network connections, I see the risks associated with an investment in ANAD as being mostly, if not totally, company-specific.

The bottom line for Anadigics is my opinion the company will build traction with its newest (fourth generation) power amplifiers.

This traction will take time to deliver profits at the bottom line of ANAD's income statement, but given the high marginal profit ANAD will enjoy as its capacity utilization improves, we should be able to see and monitor the progress.

ANAD has thoughtfully provided investors with two press releases this week announcing significant design wins and production shipments with both Huawei and ZTE - Chinas two largest handset companies.

At ZTE ANAD is being used on the V889D, V788D, N788, N910, and PF200 smarphones, and at Huawei on the high-profile Honor smartphone.

As I see it, this news supports the thesis I've shared, and the claim ANAD has made about the strong performance and efficiency delivered by its fourth generation High-Efficiency-at-Low-Power (HELP) technology.

My investment thesis for the most recent buy is very simple. I think the market has moved to a high level of risk aversion and that ANAD will show evidence that it is bridging the risk gap.

I think as the market becomes less risk adverse, and if ANAD shows evidence of bridging its risk gap, the near to mid-term upside potential is roughly 50% to 100%, plus or minus. Given my personal situation, that is an acceptable balance of risk and potential reward.