My first trip was more sad than fun, as I made my way to Florida for my grandpa’s funeral. He had a great, long life full of joy and love and we celebrated it as such.

My travels then took me to Colorado, where I enjoyed skiing on fresh powder in crisp mountain air.

My third trip took me to North Carolina, where I attended a lovely wedding and explored an area that was new to me.

And as you read this, I’ll be in New York City, spending the weekend with one of my best friends who I met on the first day of college.

I sampled several airlines on my travels–JetBlue, Delta and United–and found them to have some very significant differences.

JetBlue was the best by far. With the free TV, free snacks, one free checked bag and large, comfortable seats, the flight went by very quickly.

Delta ranks second best, with free snacks, pleasant staff and free Wi-Fi (on some flights, not ours).

United was definitely the worst, the planes were cramped, they offered no free snacks and we had to pay for every checked bag. I doubt I’ll be choosing United again soon.

Howver, despite ranking last at the airport and in the sky, United’s stock, UAL Corp. (UAUA), has been doing quite well. It was featured in Cabot Top Ten Report in January, where Editor Michael Cintolo wrote:

“No one will argue that airlines make great investments over the long term, but in the short run, they can be fruitful. And right now, UAL Corp. and the entire airline group is in favor for two main reasons. The first concerns oil prices, generally one of the two biggest expenses for most airlines; while not hitting the skids, oil has been unable to decisively push through the $80 per barrel level, and now looks to be backing off. Any break below $70 would be bearish for oil (and bullish for airlines). Second, the economy is starting to rebound, which is leading to fuller flights and higher prices. Indeed, AMR Corp. hiked prices for domestic flights in recent days, and was followed by a handful of other players, including UAL. While the company’s financial numbers are a mess, analysts have been hiking their estimates for 2010 in recent weeks, and we think upside surprises are ahead.

“UAUA has closed three weeks in a row nearly unchanged, with shares trading in a tight range during that time. Those are bullish clues, especially given the market’s nosedive last week. Of course, in a weak market, good looking stocks can go bad in a hurry, but we like the set-up, and that UAUA’s advance is relatively fresh, as it only began its latest upmove in early December. We wouldn’t go overboard, but you could buy a little here or on weakness, with a stop around 11.5.”

Since that recommendation, UAUA has continued its upward trend and is now hovering below 20. I wouldn’t bet the mortgage on UAUA, but for Cabot Top Ten Report subscribers, it’s proven to be a profitable invesment.

Expanding my travel stock search outside of just airlines, I stumbled upon Priceline.com (PCLN), which looks better than UAUA long term and was also recently featured in Cabot Top Ten Report. Here’s what Editor Michael Cintolo had to say about the stock:

“Priceline.com, which pioneered the name-your-own-price travel booking system on its Web site, is making its 11th appearance in Cabot Top Ten Report and its first of 2010. The company reported blowout numbers last week–a 54% surge in fourth-quarter profit to $1.99 from $1.29 in the year-earlier quarter. Analysts had expected just $1.68, and thus the company continues a long tradition of beating estimates. The earnings beat came on a revenue jump from $406 to $541.8 million, beating analyst expectations of $529.8 million. The key to the performance was simple; international gross bookings rocketed 81% and hotel rooms booked climbed 60% worldwide. As the recession continues to abate and more people begin to travel again (58% of Priceline’s revenue is from Europe), this story has legs.

“PCLN topped at 144 in mid-2008 before bottoming in the fall of 2008, along with much of the rest of the stock market. But it erased that old high in August, and now it’s heading for its old high of 990 from 1999. Now, we know that some investors are reluctant to pay more than $100 for a share of stock; after all, there are so many cheaper ones available. But our advice is to avoid confusing price with value. Institutions don’t think twice about the price of a stock, and neither should you. PCLN is a well-managed company, and this breakout is a great buy signal.”

But where should you invest?

I think semiconductor chips are a great sector, and there are three good reasons why.

First, business is improving.  The vast majority of companies in the sector–both those that design the chips and those that manufacture them–are enjoying fast-growing sales and earnings, and expanding profit margins.  Individuals and institutions are loosening their purse strings and buying again.  Consumers are buying cell phones, computers, televisions and cars.  Companies are buying computers, networking equipment and equipment that enables closer tracking of inventories, productivity, efficiency, etc.  And the government is buying more of everything.

Second, the chip sector is notorious for its cyclicality.  When times are good, companies in the industry expand, spending more money so they can keep up with demand.  But demand eventually slows, leaving the companies with too much overhead.  So as orders slow, they cut back (often drastically), reducing payrolls to stay profitable, some more successfully than others.  Prices fall, and eventually, demand picks up again, margins boom, and companies scramble to keep up.

In short, companies in the chip industry tend to overreact when they expand, and they overreact when they cut back.  And they have to, because the timing of every phase is different throughout the decades, so there’s no way of knowing how long each phase will last as it evolves.  The risk is that failure to adapt could be more costly than adapting too vigorously.  So the cycle goes on.

And then there’s the stock market, which is guilty of exactly the same overreaction.  Seeing margins plummet in a contraction phase, as we had in 2008, investors dump chip stocks like hot potatoes.  They get dirt cheap.  And when the turnaround comes, these stocks climb fast, as margins boom and projections of future growth are ratcheted higher and higher.  That’s the phase we’re in now.  No one knows how long it will last.  But I do know that it’s a great phase for making money, provided that you take care to exit when the trend ends.

Below are six chip stocks that look great today, presented in alphabetical order.

All are U.S. companies, all enjoy growing sales and earnings now, and all expect continued growth in the year ahead.

Atheros Communications (ATHR) of Santa Clara, California, designs chips used in wireless communications and wired networks.  Ethernet, GPS, Bluetooth and Powerline are its strengths.  The company has grown revenues every year of the past decade and it remained profitable in every quarter of 2008 and 2009.  In the latest quarter, revenues grew 89% to $186 million, while earnings jumped 265% to $0.62 per share.  The after-tax profit margin was 22.2%.  Technically, ATHR is strong, building a little base between 37 and 38.

Cree Inc. (CREE) of Durham, North Carolina, is a leading manufacturer of LEDs (light-emitting diodes).  These are the lights that will eventually take over from incandescent and compact fluorescent lights because they are far more energy efficient, last far longer and don’t contain mercury.  The company has grown revenues every year of the past decade but one (2007) and it maintained profitability throughout 2008 and 2009.  In the latest quarter, revenues grew 35% to $200 million, while earnings jumped 90% to $0.38 per share.  After-tax profit margin was 20.1%.  Technically, CREE is very strong, consolidating its latest climb just under 70.

NetLogic Microsystems (NETL) of Mountain View, California, designs chips used to accelerate the processing and delivery of content on both wired and wireless systems.  Cisco and its contract manufacturers account for 38% of revenues, while Juniper, Alcatel, Lucent and Motorola account for another 30%.  The company has grown revenues every year of the past decade and it’s grown earnings every year (impressive!) since 2005.  NetLogic stayed solidly profitable through 2008 and 2009, with earnings off just 24% in its weakest quarter. In the latest quarter, revenues rocketed 125% to $69.5 million, while earnings jumped 90% to $0.59 per share.  After-tax profit margin was 25.1%.  Technically, NETL is powerful, consolidating just above 55.

Power Integrations (POWI) of San Jose, California, is the leading manufacturer of high-voltage analog chips used in energy-efficient power conversion.  It serves a wide range of end-markets, but notably fast growing is the LED market, where Cree is thriving.  The company has grown revenues every year of the past decade and it’s grown earnings every year but one (2008).  Power Integrations stayed profitable through 2008 and 2009.  In the latest quarter, revenues climbed 56% to $66.1 million, while earnings spiked 163% to $0.42 per share.  The after-tax profit margin was 18.4%.  Technically, POWI is solidly positive, building a little base between 38 and 39, but trading volume is a little light, averaging 250,000 shares a day.

Skyworks Solutions (SWKS) of Woburn, Massachusetts, is the largest company of these six, with revenues on track to top $1 billion this year.  It’s also the most diverse, making a variety of standard and custom chips for automotive, broadband, cellular infrastructure, energy management, medical and military markets.  Skyworks had three years of revenue shrinkage in the past decade, and earnings trends are also less robust than in the companies above.  In the latest quarter, revenues grew 17% to $245 million, while earnings surged 59% to $0.27 per share.  The after-tax profit margin was 19.5%.  Technically, SWKS is quite healthy, trading between 15 and 16.  And it’s the most heavily traded of these stocks, so it’s the easiest for institutions to buy.  (Even easier are the big, well-known companies–Intel (INTC), Broadcom (BRCM) and Texas Instruments (TXN)–but their stocks are so well-known and over-owned that they can’t go up like these six can.)

Last but not least is Volterra Semiconductor (VLTR) of Fremont, California, whose chips transform, regulate, deliver and monitor the power consumed by other chips.  Big customers are Alcatel-Lucent, AMD, Cisco, Dell, HP, IBM, Juniper, Lenovo and Sony. The company has grown revenues every year of the past decade but earnings trends have been less reliable. In the latest quarter, revenues grew 56% to $34.2 million, while earnings mushroomed 278% to $0.34 per share.  The after-tax profit margin was 24.7%.  Technically, the chart is strong, with a short base at 24, but volume is light, averaging 340,000 shares per day, increases risk.

Of the six, my favorites are Atheros, Cree and NetLogic, because of a combination of fundamental and technical factors.

But I know that less experienced investors will be attracted to Skyworks and Volterra, because their stocks are lower-priced.  Trouble is, those lower prices bring greater risk.  Whatever you choose, be sure you manage risk appropriately, by buying on dips, and by keeping losses small.

It reminded us how wonderful electricity is.

And it made me thankful for the Internet, and for decentralized information, which made it possible for Cabot employees to get our advice out on schedule Friday while working from home.

In any case, the vision of numerous broken power lines left me wondering once again when we will be able to transcend this 19th century architecture of poles and wires that is not only vulnerable to weather but ugly to boot.

And that reminded me of the announcement just a week ago by Bloom Energy, a California start-up, of a solid-oxide fuel cell that has the potential to enable more localized power sources.  You could have one in your basement, for example, or a larger one could power a subdivision.

There’s still much work to be done, and the price needs to come down, but the potential is there, and the announcement by Bloom should increase interest in the field, attracting money and competitors that will make progress come faster.  I can’t wait.

In the meantime, the real progress in the energy industry lies in solar and wind, where the best companies continue to grow at a rapid pace, despite the fact that the recession has curtailed government subsidies in Spain and Germany, two countries that were previously major supporters.

But that doesn’t mean these companies are great investments.  Consider First Solar.

Back in 2007, First Solar (FSLR) was our biggest winner and the company is still king of the hill in many ways.  In 2009, its revenues grew 66% to top $2 billion.  Earnings were $7.53 per share, up 78% from 2008.

And how did FSLR perform in 2009?  The stock finished right where it started, at 135.    Today it’s still in the same neighborhood, and a stock that’s going sideways is not attractive to me.

But why does a company growing this fast have a stock that’s not going up?

In short, because investors previously expected even faster growth.  First Solar’s growth is actually decelerating at a rapid rate now.  The company has gone from being a Formula One race car (sales grew 273% in 2007) to a BMW 3-Series, and the stock’s price is still adjusting to the change.  I recommend that you continue to avoid it until investors put the stock in an uptrend again.

And note this:  It’s not just because First Solar was the leader that it’s being held down now.  The vast majority of stocks in the solar power industry look even worse, because their businesses are doing less well and because money is leaving the sector.

On a side note, on my survey of the alternative energy sector, I ran into old friend USEC Inc. (USU), which operates the only uranium enrichment facility in the U.S. (in Paducah, Kentucky).  It’s the executive agent for Megatons to Megawatts, the U.S. government’s program for converting uranium from Russian warheads into enriched uranium for electric utilities.  And it’s deploying the American Centrifuge, a next-generation enrichment technology.

But the business isn’t growing, and the stock hasn’t been in a real uptrend since early 2007.  Even President Obama’s mention of nuclear power in his State of the Union Address failed to strike a spark.  To me, that’s reason enough to ignore it.

So which alternative energy stocks do I like?  None today.  I had high hopes for EnerNOC (ENOC) recently, but the market told me I was wrong.  Bottom line, most alternative energy stocks are not attractive today.  (When they are, you’ll read about it first in Cabot Green Investor, our earth-friendly but still profit-minded publication that is currently winning with some revolutionary new technology stocks.)

What I do like today are stocks of fast-growing technology companies like NetLogic Microsystems (NETL), which earned a spot in Cabot Top Ten Report a few weeks ago.  NetLogic falls into the classic semiconductor chip category, which to me means that in the right bull market it can make you money really fast … and that when the uptrend ends you’ve got to jump out.

Well, the company had a blowout fourth quarter earnings report–sales up 125% to $70 million and earnings up 90% to $0.59 per share–after which investors gapped the stock up to new highs on big volume.  And that earned it an appearance in Cabot Top Ten Report, where editor Michael Cintolo wrote, “NETL hit 45 back in the first half of 2006, and didn’t make meaningful progress above that level until recently. So the stock has a very long launching pad to work from, which makes last week’s earnings-induced rally more promising. NETL trades just 500,000 shares per day on average, so volatility can be extreme, but we like the prospects and the stock’s more recent four-month rest period. Try to buy a little on weakness or as the stock tightens up.”

When he wrote that, the stock was trading at 48, and the stock traded at 48 for the next three days, “tightening up,” which tells you institutions are accumulating.  And then it launched ahead, in a climb that took it up to 57 today.  I still think the future is bright, but if you like it try to buy on a normal correction of a couple points.

I have used one of Benjamin Graham’s methods for the past seven years in the Cabot Benjamin Graham Value Letter with great success. The method is based upon minimum price-to-earnings ratios, price-to-book value ratios and measures of quality. The full description of this analysis can be found in Benjamin Graham’s book, “The Intelligent Investor.”

Mr. Graham suggested that investors should buy stocks that fit all of the following criteria:
(1)  The current price-to-earnings (P/E) ratio is 9.0 or less.
(2)  The price-to-book value (P/BV) ratio is 1.20 or less.
(3)  The long-term debt-to-current assets ratio is 1.10 or less.
(4)  The current assets-to-current liabilities ratio is 1.50 or more.
(5)  Earnings per share growth during the past five years is 1% or more.
(6)  The company currently pays a dividend.
(7)  The Standard & Poor’s Quality Rank is B+ or better.

The list of seven requirements is somewhat long, but several stock screening sites, as well as your favorite broker, can find stocks that meet most or all of them.

Using this analysis, my recommendations have soared 64% during the past 12 months through January 29, 2010 and have easily beaten the stock market indexes during the past seven years.

One of the stocks that currently stands out, because it easily fits all of the criteria, is Reinsurance Group of America (RGA).

RGA is a reinsurer and offers life, annuity, critical care and group reinsurance. The company guarantees insurance contracts for insurance and other financial companies. RGA sells its products in 26 countries around the world. The reinsurance industry has declined during the past several years because of the availability of competing reserve financing solutions including derivatives. I believe this downward trend has begun to reverse recently because of the turmoil in the financial markets and the problems with derivatives.

Reinsurance Group is in position to capitalize on the significant growth opportunities provided by the resurgence of the reinsurance industry in the U.S., as well as China and India. The company has over $2.2 trillion of life reinsurance in force backed by a strong balance sheet with conservative bond investments. Revenues increased 15% in the quarter ending 12/31/09, which was well above our estimate. Earnings per share were up 17%, which also exceeded our estimate. I believe the reversal has begun and that EPS growth of 14% is realistic in 2010.

RGA is the second largest provider of life reinsurance in the U.S. The company’s shares are undervalued at 8.1 times current EPS with a 1.0% dividend yield. RGA shares sell at 0.86 times current book value. The balance sheet is strong, and the Standard & Poor’s Quality Rank is A-. Reinsurance Group’s shares offer a solid investment choice for dividend income and stock price appreciation during the next two to three years.

There are hundreds of ways to determine whether a stock is undervalued or not. Some methods always work well, while other methods work for only a short time. Some methods are complicated, but others are simple.

I have been using a couple of simple systems during the past 25 years that really work well. The first system is designed to find undervalued growth stocks, and the second system is designed to find bargain-priced value stocks. I call the first system the PEG (price/earnings to growth) ratio and the second the Benjamin Graham system.

Twenty-five years ago, Standard & Poor’s created the PEG ratio to measure the degree to which a growth stock is undervalued. I use the ratio to find high-quality growth stocks selling at reasonable prices. The PEG ratio is calculated by dividing the price to earnings (P/E) ratio by the earnings growth rate. The price used in the P/E ratio is the stock’s most recent closing price.

Earnings consist of estimated earnings per share (EPS) for the next 12 months. The growth rate (the “G” in the PEG ratio) is the estimated rate of EPS growth for the next five years. A PEG ratio of less than 1.00 indicates that a stock is undervalued. The lowest PEG ratios are best.

In addition to a low PEG ratio, I look for good quality companies with a history of steady earnings and dividends growth. Quality companies may not be extreme bargains, but high-quality companies will likely produce dividend income and price appreciation upon which you can rely.

There is a very simple measure to determine which companies are high-quality and have produced steady earnings and dividend performance during the past five to 10 years. Standard & Poor’s evaluates most stocks and assigns a ranking that they call the S&P Quality Ranking.

Companies with A+, A and A- S&P Rankings indicate high quality. I generally like to find companies with these rankings, although I will often include a company with a B+ ranking, if I believe the company has good prospects and a solid balance sheet with little debt.

During the past five years, I have recommended companies with low PEG ratios every six months in the Cabot Benjamin Graham Value Letter. My recommendations have increased 22% compared to a decline of 7% for the Standard & Poor’s 500 Index during the same period. High-quality stocks with low PEG ratios have consistently outperformed the stock market indexes in advancing and declining markets. Investing in growth stocks at bargain prices makes sense in any stock market environment.

A good example of a high-quality company with a low PEG ratio is Atlantic Tele-Network (ATNI). The company has a PEG ratio of 0.51, which is very low. My calculation of ATNI’s PEG ratio is based on the current stock price of 44.15, my 2010 earnings per share estimate of 5.00, and my estimated five-year earnings per share growth rate of 17.3%. Standard & Poor’s Quality Ranking for ATNI is A-, which indicates the company has produced steady earnings and dividend performance during the past five to 10 years.

Atlantic Tele-Network, based in Salem, Massachusetts, is a telecommunications company operating advanced wireless and landline networks and both terrestrial and submarine fiber optics in North America and the Caribbean. The company acquires small telecomm companies and builds additional infrastructure to serve rural communities.

Seven significant acquisitions during the past eight years allow ATNI to provide wireless, local telephone and data, Internet and long distance services in Guyana, Bermuda, the U.S. Virgin Islands, Turks & Caicos and rural areas of the U.S.

Atlantic Tele-Network is ready to complete what is by far its largest acquisition to date. The company will acquire 800,000 Alltel subscribers from Verizon Wireless for $200 million cash. Verizon was required to divest these subscribers to receive approval for the purchase of Alltel. The price being paid by ATNI is very reasonable.

Atlantic Tele-Network’s deal, scheduled to close in March 2010, will triple the company’s sales. The company earned $2.65 per share in 2009 and will likely earn $5.00 in 2010 and $6.25 in 2011. Sales were $246 million in 2009 and should increase to $565 million in 2010 and $700 million in 2011.

Atlantic Tele-Network has increased its dividend every year during the past 12 years. The latest increase brings the dividend yield up to 1.8%. At 8.8 times my 2010 EPS forecast and with a PEG ratio of 0.51, ATNI shares are a bargain.