Buy InterDigital (IDCC)

Google Buys Motorola


The big news of the week was that Google paid $12.5 billion dollars to acquire Motorola.  The purpose of this acquisition for Google was to substantially increase its patent portfolio to make it more competitive (and perhaps the top dog) in the mobile phone market.  Because Google paid a 63% premium for Motorola, Motorola shareholders were rewarded with a 63% share-price increase in one day.

An Arms Race for Patents


A very important factor for success in the mobile phone market is access to patents.  Google took a big step forward by acquiring Motorola, but there are still many companies with desirable patents out there.  Two of Google's main competitors in the mobile phone market include Microsoft and Apple.  Both of these companies have huge cash positions; Microsoft has over $51 billion of cash and Apple has over $20 billion of cash.  The word on the street is that Microsoft, Apple, and potentially Samsung are looking to acquire more patents to stay competitive with Google.

The company with the most desirable patent portfolio according to many sources is today's recommendation InterDigital (IDCC).  With a market capitalization under $3 billion dollars and a patent portfolio that could potentially be worth $20 billion dollars, Interdigital has a TREMENDOUS potential return.  I'm talking about over 500%.

For a more detail analysis of IDCC's patent portfolio value check out Seeking Alpha's write-up.

Downside Limited


Although we never know exactly how the market will behave, Interdigital shares do not appear to be super overvalued.  In other words, IDCC is a pretty good company in its own right with the added bonus of potentially being bought out by Apple, Microsoft, or Samsung.  IDCC has been successful with its patent portfolio business by increasing both revenues and cash flow consistently year in and year out.  In addition, all the profit margins are extremely high, which is to be expected from a company that simply collects royalties for its patents.  Whether or not IDCC gets bought out, it will continue to receive royalties for an expanding mobile phone technology market.

This is the type of company that you have to be patient with.  Because there is so much speculation as to whether or not it will get bought out, the share price will no doubt be volatile.  However, the bottom line is that IDCC's patent portfolio is worth A LOT of money.  I believe that the huge upside and seemingly small downside to IDCC make it an attractive risk vs. reward investment.  Remember to invest responsibly and never allocate too much of your portfolio to any one stock!