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Data I/O Corp (DAIO) Has Fallen 20% in Last One Year, Underperforms Market

Alex Smith
·4 mins read

If you are looking for the best ideas for your portfolio you may want to consider some of Long Cast Advisers top stock picks. Long Cast Advisers, an investment management firm, is bullish on Data I/O Corp (NASDAQ:DAIO) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Data I/O Corp (NASDAQ:DAIO) stock. Data I/O Corp (NASDAQ:DAIO) is a manufacturer of programming and automated device handling systems for programmable integrated circuits.

In July 2019, Long Cast Advisers had released its Q2 2019 investor letter. The investment firm said that Data I/O Corp (NASDAQ:DAIO) stock was the largest detractor to Q2 2019 returns. Data I/O Corp (NASDAQ:DAIO) stock has posted a return of -20.3% in the trailing one year period, underperforming the S&P 500 Index which returned 12.6% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Data I/O Corp (NASDAQ:DAIO) stock has fallen by 24.9%.

In Q2 2019 investor letter, Long Cast Advisers said the fund posted a return of 1.0% in the second quarter of 2019, underperforming fund's benchmark the S&P 500 Index which returned 4.3% in the same period. Let’s take a look at comments made by Long Cast Advisers about Data I/O Corp (NASDAQ:DAIO) stock in the Q2 2019 investor letter.

"DAIO (as a reminder) manufacturers capital equipment used to program microchips in small-volume runs. Auto is a big market for them and simple math drives that market opportunity: Chip / car and byte / car penetration is growing and this should expand the need for more chips programmed and therefore chip programming equipment.

It’s fair to ask why we own a capital equipment manufacturer that supplies a cyclical industry at the peak of that cycle? The answer is that I like to own promising companies with strong management at a good price, and I think this is what DAIO represents.

On the face of it, 8x trailing EBITDA isn’t such a “good” price, especially if EBITDA is cyclically declining. EBITDA however is understated by incremental R&D spending to support a novel and recently launched chip encryption platform called SentriX.

If that chip encryption platform fails, and management dials down to “normal R&D” (I assume 20% of revenues), this is trading at 5x trailing EBITDA, which doesn’t seem unreasonable for a leading niche company with a solid management team that takes reasonable bets while conservatively managing its balance sheet.

If the platform succeeds, and we might not know for a few years, it would transform the company into something completely different, one with a potentially stable mid-teen ROE vs the current cyclical 0%- 25% range. As a patient owner of sound businesses, this seems like one that could distinguish itself over time and is worth owning despite today’s cyclical headwinds."

Iaroslav Neliubov/Shutterstock.com

In July, we published an article revealing that Stanphyl Capital is bullish on Data I/O Corp (NASDAQ:DAIO) stock. The investment firm belives that the company is likely to emerge stronger from the coronavirus crisis.

Our calculations showed that Data I/O Corp (NASDAQ:DAIO) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.