A Few Encouraging Reasons Why This Stock Is A Superb Buy

Feb.19.14 | About: Skyworks Solutions, (SWKS)

It has been over a month since I last wrote an article on Skyworks Solutions (NASDAQ:SWKS) and the company's stock has appreciated over 15% since then. This considerable jump was a direct outcome of the company's impressive quarterly performance and strong guidance. The company declared its quarterly report on 16th January, signifying a massive jump on in both revenue and earnings. The chipmaker's earnings rose to $0.34 per share from $0.30 per share as compared to the corresponding quarter of the previous year. While on the revenue front, Skyworks reported a year-over-year increment of 15%. The company surpassed the analysts' estimates on both fronts. For the second quarter, the company expects earnings of 59 cents per share on revenue of about $470 million.

After rising over 40% in the last 12 months, Skyworks Solutions ended 2013 on a high note. However, the stock is still cheap and I believe the company still has a lot of room to grow. Therefore, I think investors buy Skyworks before it gets expensive.

Apple: A Big Growth Driver

According to The New York Times, Apple's (NASDAQ:AAPL) deal with China Mobile (NYSE:CHL) was not off to a flying start as only a dozen customers showed up to buy iPhones, despite the presence of Tim Cook, Apple's CEO. However, as per the latest statistics, Apple has managed to ship roughly 1.4 billion iPhone 5s units, which isn't "weak" in my books. Analysts are projecting that Apple could perhaps sell an additional 20 million iPhones in China in 2014. Presently, Apple generates more than half of its revenue from the iPhone line of smartphones and even if the company fails to meet the 20 million target set by analysts, it will still be selling more iPhones in China than before.

While there's no denying that Chinese market is a key growth area for smartphone makers, Apple has not neglected growth driving opportunities. In an interview with the Wall Street Journal, Tim Cook, Apple's CEO, said:

"The China Mobile roll-out of LTE (fourth-generation wireless) takes place over a year. And even with adding China Mobile, we still only present our products to two-thirds of the subscribers in the world. In fact, this quarter, we'll sign on 50 new carriers."

In 2013, smartphones outsold feature phones for the first time. However, feature phones still accounted for 46.5% of the global handset segments. This indicates that the smartphone market has a lot of room to grow and Apple is making the right moves to benefit from this opportunity.

Canaccord Genuity analyst T. Michael Walkley noted that Skyworks, along with RF Micro Devices (RFMD) had won "strong" dollar content in some of the new iPhones' radio function and antenna switches. The company has gained share from Peregrine Semiconductors (NASDAQ:PSMI). Therefore, the expected rise in sales of iPhones will catapult Skyworks Solutions higher.

Internet Of Things

Industrial Internet, or Internet of Things, refers to the integration of complex physical machinery with networked sensors and software and Skyworks is well set to benefit from it. "We are capitalizing on unprecedented demand for wireless ubiquity and the Internet of Things," said CEO David Aldrich in the press release. According to Morgan Stanley, 75 billion devices will be connected to the internet by 2020. The firm also claimed that there are 200 unique consumer devices that could be connected to the Internet that have not yet done so.

Skyworks is already in partnership with General Electric (NYSE:GE) and Boston Scientific. General Electric is planning to add machine-to-machine connectivity across its entire industrial portfolio and is looking to boost global GDP by $10-15 trillion! Skyworks has taken a step forward on this front by landing design wins in the healthcare segment, which accounted for 17.5% of United States' GDP in 2010.

Healthcare spending in the U.S.A. is increasing at a rapid pace General Electric is working on reducing the overall expenditure by eliminating waste spending without harming consumers or diminishing the quality of care that people receive.

Wrapping Up

2013 was a great year for Skyworks Solutions, but the company is well set to sustain its bullish run in 2014 and beyond. Moreover, Skyworks is currently trading at 11.1 times its 2014 earnings, and is cheaper than peers like TriQuint (TQNT) and Broadcom (BRCM). In addition, the company is also on course to benefit from Apple's sales driving initiatives. I personally believe that the stock is ridiculously under-bought and buying it at present valuation is a great bargain.

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.