LSI Corporation scores 2 on our checklist; Strong Q1 results with the acquisition of SandForce

• CHART- know how to read charts. I firmly believe I can improve the price of buying or selling from an understanding of chart action.

 No sign of a turnaround yet; -1

• ANALYSTS- read analyst reports but come to your own conclusions.

4 strong buy, 6 buy, 2 hold, 1 sell (according to CNBC); +1

• INSIDERS- if the people that know the company the best are not buying it, why should you?

Independent director Charles Haggerty recently purchased 40,000 shares at a price of $6.93-$8.07; +1

• MANAGEMENT DISCUSSION 10Q AND 10K- this is the only truthful thing you will read about a company. It’s composed by management, the auditors, and the firm’s lawyers.  If all three of them can agree on the verbiage, it’s passed a big hurdle.  Read it carefully.  Pay particular attention to the Risks, Litigation, and Related Transaction sections.  These are the things you will wish you had taken the time to read if something goes bad with your investment.

LSI acquired SandForce on January 3; the new entity attributed to $31.8 million in increased sales for Q1 2012 with total sales up 45% for the quarter.  They also received a $43 million tax benefit for Q1 2012 in conjunction with the SandForce acquisition.  SandForce was in the process of developing new flash technology during the acquisition deemed “the Griffin Project”.  As a caveat to the deal, LSI has agreed to finish the Griffin project.  Over $200 million of sales during Q1 2012 (about 33%) can be attributed to Seagate Technology.   

The company has been approved to repurchase $750 million or almost 25% of their stock (at current price) and have already bought 4.6 million shares with a total value of $38.2 million.  “Significantly” underfunded pensions may hinder cash flows in the future.

Margins are expected to continue to increase and with no debt, cash should not be tied up (barring pension obligations); 0

• RELATIVE PERFORMANCE- If the stock has a superior relative performance to the market in the short term

Outperformed for the last 6 months until the beginning of May; +1

• SECTOR OUTLOOK- buying a good stock in a bad sector can be a humbling experience

Tech closely tied to the market; 0

• CASH FLOW- cash flow is more accurate than earnings. Earnings can be more easily manipulated.

Reported consistent operating cash flow regardless of earnings.  Operating income has grown each of the last 5 years; 0

• PEG RATIO- it’s good to find a company growing faster than it’s multiple.

0.48 (according to Yahoo! Finance); +1

• VALUATION- contrary to popular opinion, it does matter what you pay for a company.  Check its discounted cash flow value.  Buy it for less than what it’s worth, a 1, less a -1, about the same 0.

DCF model indicates an intrinsic value of 5.37; -1

• CATALYST- what’s going to change the status quo?

If growth continues on current trends and the SandForce acquisition proves to be a strong entity then the stock could be poised for a pop.  The large portion of their revenue attributed to Seagate is not ideal.  It sounds as though they are trying to expand their offerings though.  Look for future M&A and Q2 earnings results; 0