One of the most promising chipmaker, Skyworks Solutions (SWKS), has appreciated well over 40% in the last 12 months. I believe that the stock is ridiculously under-bought and has bags of upside potential. Investors love stocks that perform consistently without getting ahead of their fundamentals and risking a meltdown. Skyworks Solutions fits the bill perfectly and is probably one of the safest investment options out there. The stock may have has grown considerably, but I still think the company has a lot of room left for growth. So, I think investors should fill up their portfolios with Skyworks before it gets expensive. Let's take a look at the reasons why I think you should buy Skyworks Solutions as soon as possible.
Apple-China Mobile Tie Up A Massive Opportunity
Apple's (AAPL) long-anticipated iPhone distribution deal with China Mobile (CHL), the world's largest wireless carrier, has finally materialized and this is a big plus for Skyworks. On 22nd December, Apple announced that it had entered into a multi-year agreement to offer the iPhone on China Mobile's 4G and 3G networks starting on January 17. The deal gives Apple access to more than 700 million China Mobile customers, and analysts are estimating that Apple could perhaps sell an additional 20 million iPhones in China in 2014. Moreover, Creative Strategies analyst Ben Bajarin noted, "There's pretty big pent-up demand on China Mobile for the iPhone. The deal, while huge for Apple, is underestimated by most analysts. It could very well ramp faster than any of us can imagine."
Canaccord Genuity analyst T. Michael Walkley noted that Skyworks had won "strong" dollar content in some of the new iPhones' radio function and antenna switches. The company has gained share from Peregrine Semiconductors (PSMI). So, Apple-China mobile tie-up will surely benefit Skyworks Solution in 2014, and beyond.
More From Apple And China, Separately
Skyworks Solutions already provides chips for Apple's iPhone, iPad, and iPad mini, but it will be getting a further boost as many rumors suggest that Apple will be launching a larger 12 inch "iPad Pro" this year. This means Skyworks has another new growth catalyst, and this should help the company enhance its margins going forward. Moreover, iPhone 5s is now available in over 100 countries and the soaring sales of the smartphone should help Skyworks to surpass all expectations.
Moving on, I also expect Chinese smartphone market to be a massive growth driver in the upcoming years. Presently, approximately 80% of the Chinese subscribers are carrying a 2G phone. Skyworks' management sees a gigantic opportunity as more users switch from 2G to smartphones and the company's partnership with the likes of Mediatek and Spreadtrum should help it gain traction in the Chinese market.
Skyworks jumped over 6% in the last few days as two analyst firms released glowing notes on the chip maker. Analyst firm B.Riley upgraded Skyworks from natural to buy, and revised their price target upwards to $35. The firm noted that Skyworks Solutions' cheap valuation compared to other wireless chip designers and its plan to gain traction from the booming smartphone market in China were the primary reasons for the upgraded.
BMO Capital raised the bar higher and pinned Skyworks' price target to $40. The firm cited high prices and rich margins for Skyworks' 802.11ac Wi-Fi chips as the primary growth driver.
Cheap Valuation And Strong Balance Sheet
Investors tend to pay over the odds for tech companies with strong prospects. However, Skyworks Solutions cheap valuation makes it doubly attractive. The company has a forward P/E of 10.26, nearly 33% less than the industry average of 15. Moreover, Skyworks Solutions has a solid balance sheet with over $500 million in net cash. This translates to nearly 10% of its overall market capitalization. To paint a clearer picture of Skyworks cheap valuation, let's compare it to its primary peer, Broadcom (BRCM). By comparison, Broadcom has forward P/E ratio of 12 , and also has a debt $1.7 billion. This indicates that the stock is very cheap.
Even though Skyworks Solutions has appreciated significantly in the last 12 months, it's still not too late for you to join the party. As we saw above, the company is well set to benefit from the Apple-China Mobile deal and has a lot of room to grow. Also, Skyworks is right on track to benefit from the booming Chinese smartphone market. So, the company's prospects look very strong and it amazes me how investors tend overlook it in favor of other hype driven tech companies. The company hardly has a downside and is an extremely safe bet in the current market. In addition, the stock is really underpriced. So, I it is the right time for investors to load up their portfolios with this Skyworks Solutions.