Linear: The Formula for Profits?

Looking at integrated circuit-maker Linear Technology's (Nasdaq: LLTC) secondquarter report, it's easy to see why the stock is a Motley Fool Stock Advisor pick. Linear's competitive moat is a mile wide, and few rivals can afford even the entry fee into this neighborhood.

Linear reported second-quarter revenue up 14 percent over last year, though earnings dropped 7 percent. All things considered in this environment, that's not bad. Linear is sitting pretty with the fattest profit margins in a notoriously cutthroat market, thanks to its contributions to high-profit, first-to-the-market proprietary products such as the iPhone.

Everything isn't smooth sailing, though, even for this cash creator. Third-quarter sales are expected to drop another 15 percent to 20 percent from the second quarter, whereas Linear is used to about 6 percent sequential sales growth between these two periods. And even that gloomy outlook assumes that order volumes in February and March pick up a bit from current rates.

But the company appears to be weathering the recession well, buying back $200 million of its $1.7 billion in senior debt notes last quarter and raising its quarterly dividend by a penny to $0.22 per share. (Its yield is around 3.8 percent.) Hard times will separate the wheat from the chaff, and Linear is practically bread already.