One Guy's Investments: Annual Checkup -- WFR

Well, this looks like a reasonable company to examine today, thanks to the killjoys at Morningstar. MEMC Electronic Materials (WFR -- free RT streaming quote & portfolio tools) has had a very good year as their c0meback bid truly took hold amid a good market for their products. My shares were purchased back in June at an average price of $16.25, which seemed like a bargain even after WFR's 50% run earlier in the year, and now Morningstar has come out with a report pegging them as one of the more overvalued stocks on the Street (to be precise, they say WFR is trading at 328% of its fair value). Their complaint is that MEMC is in a commodity business (the supply of silicon wafers -- they're one of the top three or four worldwide suppliers, and the only big US one), and that their industry is very capital intensive and subject to significant downturns. All quite possibly true, though there are competitive advantages to be had in wafer design and production, as well as competitive pricing possibilities. One of my arguments when I first purchased shares in MEMC was that their capacity to produce their own polysilicon, which is in high demand from both the solar energy and semiconductor industries, might give them a bit of a pricing advantage over their competitors -- they don't need to buy polysilicon at high prices on the spot market. I wrote a bit about WFR back in November when their shares made a big turn, and it's been up up up since then. With semiconductors still on a tear and the solar power industry gobbling up all the silicon it can find, I still like WFRs prospects even if the price may have gone up a bit too far, too fast. I wouldn't be too surprised to see a minor selloff at these prices, but I think with chip manufacturers working at capacity WFR should still see a good market and good prices for the coming year ... no reason to sell, in my book.

Labels: WFR