Follow-up on OVTI

Last week, I said I would post my thesis on OmniVision Tech (OVTI). Today, my editor at TheStreet.com summarized my case for the stock. Here are his comments:

Late last week, Jordan Kahn laid out the bull case for OmniVision Technologies (OVTI) in The Long/Short Investor. OVTI makes camera chips used in toys, cell phones, digital cameras and security devices, and is benefiting from robust demand. Jordan doubled his money in OmniVision back in 2003, and here are five reasons why he's bullish now:

• Growth -- Revenue and profits have surged in recent quarters on booming demand for video chips.


• Finances -- OmniVision has no debt, high returns on capital, and it generates strong free cash flow.


• Valuation -- The stock sells for less than 12x forward earnings on an adjusted basis.


• Technicals -- After a 50% drop from the spring through summer, OVTI shares have consolidated nicely above the 50-day moving average.


• Sentiment -- Short interest is now 34% of the float, setting the stage for a short-covering rally.

Jordan also notes that the put/call ratio is very high. This bullish contrarian signal was confirmed today by Jay Shartsis, following up the surge in put volume he noted on Oct. 18.

To summarize, all the pieces are in place for OmniVision: Rapid growth, strong finances, low valuation, solid technicals and contrarian sentiment indicators. Jordan sees the stock back near $20 in the near term, though the stock could rise into the mid-$20s if earnings exceed expectations.

Jordan's using a 15% stop loss, so he'd get out if the stock trades below $14.

For my video on OmniVision, please click here.

long OVTI