Makers & Breakers

Digitizing the World

Analog chips turn real-world phenomena like sound, light, temperature and pressure into ones and zeroes that digital microprocessors can understand. They're indispensable on a mobile phone: They turn your voice into data packets, control settings on the camera and manage battery power. Analog-to-digital converters also show up in appliances, cars, industrial scales and controllers. Demand for analog chips flagged in the recession but is now rebounding with the economy.

Maxim Integrated Products (MXIM, 17) is benefiting. It has a diversified book of business divided among 70 types of chips sold in consumer, computing, industrial and communications markets. Maxim's competitive strength is its ability to customize chips quickly for a variety of uses, from blood glucose meters to fiber-optic relays. It plows 33% of sales back into R&D. Sales of $449 million in the September quarter were down 10% from a year before but up 14% from the June quarter. The company has $3 a share in cash and no debt.

Trailing earnings are nothing much. Maxim earned just 2 cents a share in the fiscal year that ended last June, but ThinkEquity analyst Vijay Rakesh says Maxim should earn $0.73 this year and $1.08 a share in the fiscal year that ends in June 2011. At a multiple of 20 times earnings this stock would be trading at $22. --John Dobosz

The Un-Cisco

Shares of Juniper Networks (JNPR, 25) have doubled since March. But it's a mistake to avoid a highflier simply because you missed the low.

Juniper, which along with Cisco dominates the market for network equipment, is poised to get a lot more business from big companies, says T. Rowe Price Global Technology Fund manager David Eiswert. Last summer Juniper recruited Kevin Johnson away from Microsoft after Microsoft's bid for Yahoo failed. Eiswert believes that Johnson will be adept at landing orders for switches, routers and security products from big corporate accounts. Indeed, Juniper recently announced that it was teaming with Dell to sell secure networking equipment and software, including its MX routers and Junos operating system, under Dell's PowerConnect brand. It's also partnered with IBM in its cloud-computing push.

Telecom clients like AT&T are champing at the bit for Juniper's new MX 3D Universal Edge Router, designed for next-generation bandwidth needs. MX 3D can handle data traffic at 1.4 terabits per second. Eiswert says The Street is undervaluing Juniper's technology and that it's worth its steep price, which comes to 21 times the earnings he expects next year. The company has $5 a share in net cash, and its earnings will grow by 40% next year. "This company wants to be the Apple of networking," says Eiswert. --Matthew Schifrin

Fool's Gold

The price of gold ($1,095 per troy ounce) is up 25% this year. But that's nothing compared with the action at Affinity Gold Corp. (AFYG, 6), whose split-adjusted shares have risen 73,000%. That gives this curious little company a market value of $312 million, or 685 times book value. The firm is only two years old and has never sold an ounce of the shiny stuff or, for that matter, brought in even a dime of revenue. In SEC filings Affinity says its main office is in the Minneapolis suburb of Maple Grove. But the speculation centers on faraway Peru, where a recent Affinity press release states that "very positive indications of gold content," and some silver, have been found in the play.

Dig deeper into SEC filings and they reveal that in January Chief Executive Antonio Rotundo paid $58,000 to buy a shell company, Syncfeed, which had tried to produce food for crab hatcheries in China. He changed its name to Affinity and then sold Peruvian mining claims his family owned to the entity in exchange for stock. A recent marketing push in Europe--Affinity's Web site offers a German version--might explain some of the price increase, which even an Affinity spokesman (in Maple Grove) agrees is a bit much. If you can locate shares to borrow, short the stock. --William P. Barrett

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