Cirrus Logic: A Case Of Mistaken Identity

| About: Cirrus Logic, (CRUS)

Of all the stocks that I have recommended so far, the one that has disappointed is Cirrus Logic (NASDAQ:CRUS). No other recommendation that I have made so far is down from the initial recommendation price.

Everyone plays Cirrus Logic like an Apple (NASDAQ:AAPL) derivative. Although I think they are wrong in doing so, nevertheless the market is the market and you can't fight the market. I had hoped that sooner or later (hopefully sooner) the stocks of both companies will part and Cirrus Logic will stop being in the shadow of Apple, but that has not happened so far.

There have been many reports recently about Apple suppliers receiving fewer orders from Apple and that iPhone sales are slowing down. The story about Foxconn (OTCPK:FXCNF) was particularly played in the press.

But if one reads between the lines, the slowdown in hiring at Foxconn has little to do with customer orders.

As Reuters reported, Foxconn said:

Due to an unprecedented rate of return of employees following the Chinese New Year holiday compared to years past, our company has decided to temporarily slow down our recruitment process," the company said in a statement. This action is not related to any single customer and any speculation to the contrary is false and inaccurate.

And as Reuters explains:

Like other Chinese contract manufacturers, Foxconn relies on a large number of migrant laborers from across the country, who journey home for the most important holiday of the year. Many do not make it back to work, but Foxconn spokesman Louis Woo said this year they saw as many as 97 percent of employees return.

So a slowdown in recruiting really has nothing top do with customer orders, but the market is playing an Apple supplier slowdown.

Either way, I reiterate all that I have said about the company until I see information to the contrary. Please read my takes here. And while I am still bullish on Cirrus Logic, Apple's downward trajectory has taken its toll on the stock.

However keep in mind that the smart money is on alert for these kind of fluctuations. In fact the smart money relies on bad market psychology and market swings to buy many stocks at rock bottom prices. Personally, I think that's what is probably happening with Cirrus Logic.

Please recall what I have said about big volumes. They usually happen at turning points -- at new highs or at new lows. Usually a new high with big volume means that the smart money is selling because it knows that the news that caused the new high is already discounted. When we have big volumes at new lows, usually the bad news that made everyone sell is also discounted and the smart money buys.

(Click to enlarge)

From experience, when I see a new low with high volume, it is better than a new low with low volume. And even though a new low is a new low and is not a positive development for any stock, nevertheless a new low with good volume means people are buying. Please recall the article I wrote on Nokia (NYSE:NOK) on the same subject a while ago (please consider: Nokia: Buying The Dips).


If you are a long term investor and bought Cirrus Logic based on my recommendation and its long term prospects, do nothing for I think the stock will do well long term.

If you are a short term trader or swing trader, you know the rules of the game and you have your own stop loss tolerance levels. I don't have to tell you what to do, you know what to do.

If you have been dollar cost averaging you position in Cirrus Logic -- and even though I prefer to dollar cost to the upside than the downside -- continue adding to your position that will lower your cost average.

Bottom line

Cirrus Logic continues to be a case of mistaken identity. The market still continues to treat it like an Apple derivative. While the market is correct -- to a certain extent -- in treating Cirrus Logic like Apple, I think it is over-doing it and I don't think it is right to mark the stock down this much.

Because at the end of the day, unless something changes in the future and if analysts have it right, the question is, how much can one lose on this stock with a forward P/E of about 6.5?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.