By George Putnam, The Turnaround Letter

Semiconductors stocks in general tend to be very cyclical, depending on demand for technology products, and Cypress Semiconductor (CY) is particularly volatile.

Cypress, led by founder T.J. Rodgers, who is still CEO, has always taken a long-term view and not worried much about short-term stock performance. We believe that investors who take the same approach will be well rewarded by Cypress stock.

Cypress has migrated away from commodity-type chips to semiconductors for specialized applications for touch screens, programmable system-on-chip products and USB controllers.

The company is adept at identifying growing niches for which to develop products. For example, its leadership in touch-screen chips positions it well for the continuing strength in smart phones and tablets.

Cypress has also proven adept at getting out of product areas at the right time. In the early 2000s it developed products for solar power that were quite successful. Then it spun off that business in 2008, just before the solar market collapsed because of foreign competition.

Company officers have also shown an aptitude for buying and selling Cypress stock at opportune times. Therefore, it is noteworthy that CFO Brad Buss bought nearly $200,000 of stock in the open market in November to add to the nearly 1.4 million shares (including options) that he already owned.

Moreover, he is not the only executive with a significant stake in the company. CEO Rodgers owns more than 12 million shares, or 7.8% of the outstanding stock, and two other top officers each have more than a million shares.

Perhaps because of this employee ownership, Cypress is committed to returning value to shareholders in the form of dividends and stock buybacks. The 4.0% dividend yield is quite generous, particularly in the technology sector.

Since announcing a $400 million stock buyback program in September 2011, the company has repurchased almost 20 million shares, nearly 12% of the outstanding stock. The cash flow and balance sheet look strong enough to continue this generosity for the foreseeable future.

The sector is out of favor presently as investors fret about a tech slowdown. We expect most semiconductor stocks to re-bound and Cypress stock to rebound particularly strongly.

Of course, we don't know exactly when that will happen. Therefore, we like the fact that the hefty dividend compensates you while you wait for the bounce.

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