Verigy Ltd. $9 – Nasdaq symbol VRGY

VERIGY LTD. $9.00 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.8 million; Market cap: $520.2 million; WSSF Rating: Extra risk) designs and makes test systems used in the production of computer chips, flash memory and high-speed memory. The company aims to improve its prospects with new technology that combines several functions onto a single chip. That lets manufacturers use fewer chips, which cuts their costs. However, these new products currently account for just a small portion of Verigy sales. Due to slowing demand for computers, Verigy’s earnings before onetime items in the fiscal year ended October 31, 2008 fell 32.7%, to $72 million from $107 million a year earlier. Earnings per share fell 33.5%, to $1.19 from $1.79. Sales declined 9.2%, to $691 million from $761 million. Verigy is still debt free, and has cash of $340 million or $5.88 a share. That gives it plenty of room to fund research (15% of fiscal 2008 sales) and buy back shares. Verigy stands to gain from the increasing complexity of chips. It’s also doing a good job selling services, such as consulting and repairs. That cuts its reliance on equipment sales. The stock now trades at 9.0 times its forecast earnings for fiscal 2009 of $1.00 a share. Verigy is a buy.

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