MENTOR GRAPHICS $19.74

MENTOR GRAPHICS $19.74 (Nasdaq symbol MENT; TSINetwork Rating: Extra Risk) (503-685-7000; www.mentor.com; Shares o/s: 117.5 million; Market cap: $2.3 billion; Divd. yield: 1.1%) makes systems that improve the design of electronic products and speed up their development. Its systems are used in a range of industries. The auto business is one of the company’s biggest growth areas because of the shift from mechanical to electronic systems: electronics now make up roughly 40% of a car’s cost. In the three months ended January 31, 2016, Mentor’s revenue fell 23.2%, to $337.3 million from $439.1 million a year earlier. Earnings per share fell 42.2%, to $0.63 from $1.09. The company makes about 70% of its profits in its fiscal fourth quarter, which ends January 31. That’s the busiest period in its customers’ purchasing cycle. The shortfall is mainly because a number of its customers are involved in takeovers. For example, Microsemi recently bought PMC-Sierra, and ON Semiconductor has agreed to buy Fairchild Semiconductor. Those customers are now more focused on acquisitions than on closing contracts. Mentor has also introduced new products, which furthers the delays because clients must evaluate those systems before ordering. The company holds cash of $334.8 million, or $2.85 a share. It has low debt and spends a very high 32% of its sales on research. That lets it keep ahead of competitors in its constantly changing market. The stock trades at 11.8 times this year’s forecast earnings of $1.68 a share. It yields 1.1%. Mentor Graphics is a buy.

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