Dow Jones 12247.00 +46.90 1:37 pm PST, February 7, 2008 NASDAQ 2293.03 +14.28 For info, visit access.smallcapnetwork.com S & P 500 1336.91 +10.46 Change your subscription status here Russell 2000 702.78 +10.29 VOLUME 08 : ISSUE 12 An 'Overshot Devaluation' Opportunity Well, it looks like they've done it again. Analysts, the media, and the market in general have gone overboard with their efforts to beat up a stock...and I couldn't be happier. Why? I believe the army of bears that drove this company lower basically overshot their target, and left behind a company undervalued at its current levels. I attribute a lot of the senseless swing to the market a la mode. Since November, stocks have been like Dr. Jekyll and Mr. Hyde, forcing investors into an 'all or nothing' mentality.  RF Micro Devices (NASDAQ: RFMD) happened to be on the wrong side of that merry-go-round right at the beginning of the year, but you know the deal with merry-go-rounds - they come back around. With the dust settling, I think critics are going to start realizing the numbers are still solid, even with last quarter's (and future) warts.    The Snowball Effect  Before anything else is said let me say this...RF Micro Devices wasn't completely innocent in the matter. The stock sank from just under $6.00 to the recent price around $3.00 mostly due to disappointing earnings and sales. If you fall short of expectations (and give no realistic hint things will get better), investors ain't gonna' like it. In RF's case, the bearish snowball started rolling in early January, predictive of the news bomb that dropped on January 11th - the company warned of a not-so-great Q3, and they were right. By January 31st, the company announced results that were worse than the same quarter from a year earlier. Revenue was down 4.6%, and the company took a net loss of 6 cents per share versus a gain of 26 cents per share from the same quarter in the previous year. The stock's selloff accelerated the whole time this was happening.  Nothing to brag about, right?  The primary reason for the shortfall was simply that the company didn't answer when RAZR phones hit the scene...especially in Asia. The popular BlackBerry and iPhone didn't help the cause either. I understand the sentiment, but I don't understand the size of the stock's plunge. We saw a 50% dip from shares following a 4.6% decline in revenue. Might there be something a little off-balance there? But wait - the chart's only half the story. Many of the key valuation ratios are suggesting the stock is bizarrely cheap, even if sales stay soft.    Those Aren't Misprints Again I want to qualify something before I voice my main thoughts...just because a stock is undervalued now doesn't mean it will correct itself now. A stock can continue to become more undervalued for a while, which doesn't do any owners any good.  On the other hand, if you see a chart perking up for an undervalued stock, you may not want to tarry. (We'll look at RFMD's chart in a second.)  Anyway, when I saw some of the ratios for RF Micro Devices, I thought I was seeing misprints. I wasn't though.  As of my last look, the price/sales ratio (previous quarter) for RFMD is 0.76. The industry's average is 2.52. The price/earnings ratio for the last 12 months is 13.5, while the industry average is 23.4. So how does the market overlook those kinds of numbers? I don't think the market is forgetting them - I just think investors are looking at last quarter's results and extrapolating ...a lot. Yes, the company blew it last quarter. There's no doubt about it. I don't know that the next quarter will be much better. But, I have to think a company that has been highly profitable before can become so again. The top line, even with the decrease, is still a nice top line. In fact, the annualized top line is still bigger than the company's market cap - a rarity. More than that, I think other investors are starting to think the same way. Read on...    Pulling Itself Up By The Bootstraps You can play the "what's a stock worth?" game all you want - the only thing that really defines its worth is what you and I can sell it for at a later date. So, I'm a big fan of stocks that are (1) undervalued, and (2) at least trying to move higher. In that light, I have to give RFMD another acknowledgement - it's been slowly on the mend since January 23rd...a period that's been unfruitful for most other stocks. We're starting to see higher highs and higher lows, and the gains are coming on slightly higher volume. It's not heroic, but it is a start.  To make a long story short, I don't think RF Micro Devices is a long-term holding yet. The small loss from last quarter needs to be patched up, and soon. I believe they can do it; I just don't know if they will do it. However, I do feel RFMD is apt to correct to the upside in the near term, and I like the potential upside recovery here. I think the selloff was overblown, and even by unprofitable company standards, $3.25 seems a little too low.  As for an upside target, let's remain conservative and place it at $4.01. That would only be a 38.2% retracement of the December/January slide. Plus, at $4.01, the market cap would still only establish a P/S ratio of a little less than 1.0. I think that's palatable by almost anyone's standards. RFMD could eventually be worth more, but I'm not willing to make that stand just yet. We'll talk when and if the time comes.  As for a stop level, I suggest $2.75. That's a nickel under the January low. I usually don't like to be quite that loose with a stop, but I want to give this low-priced stock a fairly wide berth.  Anyway, just an idea. We'll be adding RFMD to our trade alerts as of tomorrow, and we'll be following the stock as long as we need to.  By the way, we're still brewing up a nice small cap idea for you. No ETA just yet, but I'll try and give you a launch time as soon as I can. Think 'clean energy'.      We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Small Cap Network Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. Receiving the Small Cap Network Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the Small Cap Network recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery. Subscribe Here Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the Small Cap Network Newsletter, simply follow the instructions located at the bottom of every Small Cap Network Newsletter Edition. Refer A Friend  If you find the Small Cap Network Newsletter informative and profitable, please forward our newsletter alert service to like-minded friends and associates who share similar market interests.   Ensure Newsletter Delivery  To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. Receiving the Small Cap Network Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the Small Cap Network recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery. D I S C L A I M E R: The Small Cap Network, its website and email newsletter (hereafter, cumulatively referred to as "SCN") , is an independent electronic publication committed to providing its readers with factual information on select publicly traded companies. SCN is owned and operated by TGR Group, LLC ("TGR"). All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. Moreover, as detailed below, TGR accepts compensation from third party consultants and/or companies, which it features in the publication and circulation of SCN. To the degrees enumerated herein, SCN should not be regarded as an independent publication.  Click Here or go to http://access.smallcapnetwork.com/compensation_disclosure/ to view our compensation on every company we have ever covered, or visit the following web address: http://access.smallcapnetwork.com/profile_disclosure/ for our full profiles and http://access.smallcapnetwork.com/alert_disclosure/ for Trading Alerts.  From time to time TGR sells shares received as compensation for coverage of client companies. Shares received are sold in the open market. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, TGR does not view the sale of the shares as contradictory to any opinions delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies.  TGR, its Members and Members' families, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed.  All statements and expressions are the sole opinions of TGR and are subject to change without notice. A profile, description, or other mention of a company within SCN is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.  The profiles, critiques, and other editorial content of SCN may contain statements that appear foward relating to the expected capabilities of the companies mentioned herein.  THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF TGR.  We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.