Snap up this undervalued tech stock

This US-listed company enjoys an 80% share in its biggest market. Profits are rising, and the company is growing fast. But investors are giving it a wide berth. David Fessler explains why they're wrong.

Look at the appliances you have in your home and you'll find a common denominator among them: whether it's the refrigerator, washing machine, dishwasher, or air conditioner, modern society is dependent on all kinds of electric motors.

But it's not just big-ticket items that require motors. Thanks to advanced technology and rare earth 'super magnets', motors have drastically shrunk in size. And these miniature motors have significantly transformed the way we live.

While they've actually been around since the late 1970s, those older versions were huge compared to today's devices. (By way of comparison, if you've seen the movie Wall Street, picture Michael Douglas' massive cellphone, which was considered high-tech at the time, versus today's slimline versions.)

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And over the past 20 years, there's no question about the largest market for miniature motors.

Get your motor runnin'

The electronics industry is drawn to magnets like - well, a magnet.

Take cellphones, for example (no, not Michael Douglas' gigantor version.) It's now commonplace for phones to vibrate when you get a call, text message or e-mail. But most users don't think about the fact that what creates the vibration is a tiny little motor, spinning a small metal disc.

But making phones vibrate is just one of miniature motors' many applications. And when it comes to the guys manufacturing them, there's a Japanese company that is going gangbusters.

The biggest little motor maker you've never heard of

In 1973, engineer Shigenobu Nagamori and three of his engineering friends founded Nidec Corporation (NYSE: NJ). Their goal: to develop and manufacture the tiny motors that the electronics industry wanted so badly.

Talk about a sound business plan. With annual sales of over $7bn, it's now the world's largest maker of miniaturised motors that are used in computers, copiers, industrial machinery, automobiles and home appliances.

The turning point was arguably 1979. At the time, IBM and 3M Company were the largest makers of eight-inch disk drives. But they needed very small direct current motors to develop newer versions of their products.

Enter Nidec. In 1979, it developed the first brushless, DC spindle motor for eight-inch hard disk drives (HDDs). And from that point forward, it was 'off to the races' for the company. The market for these motors is so big that Nidec is now Japan's fifth-largest electronics company. It currently enjoys an 80% market share for HDD motors, while sales of brushless, DC motors for HDDs account for 60% of the company's business.

But even with the company's success in the HDD market, Nagamori is not a man to sit on his hands.

Small motors, big goals

Since Nidec's humble beginnings in 1973, Nagamori has acquired over 30 companies. And now, his growth goal is to more than triple the company's size by 2015.

So how is he going to do it?

He plans to increase Nidec's market share in sectors that increasingly require the kinds of motors that Nidec makes. The automotive industry is a great example and Nidec is already doing business there.

Sounds like a pretty logical business model, right? But despite Nidec's estimated revenue increase of nearly 13% and profit jump of nearly 28% for the remainder of 2010, Nidec shares are down nearly 10% year-to-date.

So why the lack of investor interest?

Do you believe in forecasts? here's why you should ignore this one

It seems they're listening to the forecasts from PC and HDD makers for the remainder of the year. Analysts believe PC sales will soften, as the economy struggles to gain traction. And with Nidec's parts in PCs, that doesn't bode well.

But for all intents and purposes, the recession is over and we've seen decent corporate quarterly earnings. So I'm betting that PC sales will continue to ramp up higher and faster than analysts are predicting.

Keep in mind that consumers view up-to-date PCs among the most important "appliances" and they're replacing them on a regular basis. So are some of the largest Fortune 500 companies.

Bet against Nidec if you dare

However, some investors aren't paying much attention to the analysts either at least not judging by the measly amount of short interest in the company. Nidec currently has the smallest short interest of any company in the electronics components industry.

Translation: While analysts may say they're worried about the outlook for PC sales, they're not willing to pony up the money and bet against Nidec. So with investors focusing on anything but real value, it's a perfect opportunity to pick up shares in a great company currently being 'dissed' by mainstream analysts.

And if Nagamori comes anywhere close to his goal of tripling the company by 2015, we'll all be sending him thank you notes.

This article was written by David Fessler and was first published in the daily investment newsletter Investment U on 13 August 2010.