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The iPhone 4S is now on sale. That's good if you are long Apple (NASDAQ:AAPL). But if you're already in Apple, and want to increase your iPhone exposure without overweighting your portfolio in one stock (which may not be a bad thing if that stock is Apple), you might want to consider some other plays on the iPhone. Two of them that I would recommend are TriQuint Semiconductor (NASDAQ:TQNT) and Skyworks Solutions (NASDAQ:SWKS). Now I am recommending these names as good plays for the iPhones, but you need to realize that they have rallied hard recently and you should wait for a pullback before getting in. So why are these good plays? Well, let's start with the device. According to reports, IFixit has torn apart the device and said the following. Skyworks has a chip in the iPhone, and there appears to be two images of chips from TriQuint in the phone. While the TriQuint part has not been confirmed, Barron's mentioned them as well, adding credibility to this speculation. There are also chips in the phone from Qualcomm (NASDAQ:QCOM), but I'm only going to focus on the smaller firms for now. Qualcomm is a much larger company that I would recommend buying for iPhone exposure if you don't want the risk of a smaller firm like the ones I am discussing.

Having chips and other parts of the IPhone would definitely be good news for either of these companies, but let's also look at them compared with some of their competitors. I want to discuss whether they are good investments, regardless of the IPhone news. Let's look at some stock info first. According to Yahoo! Finance, the two major competitors for these firms are Anadigics (NASDAQ:ANAD) and RF Micro Devices (NASDAQ:RFMD).

Prices TQNT ANAD RFMD SWKS
Current Price $7.19 $2.46 $7.28 $22.40
52-week high $15.20 $8.20 $8.48 $37.82
52-week low $4.66 $1.92 $4.95 $16.34
Market Cap. $1.18B $167M $2.01B $4.17B
Last week's move 27.03% 13.89% 11.66% 17.09%

As you can see, these stocks all rallied this week with the market, and TriQuint and Skyworks rallied even more when news of the iPhone chips came out. TriQuint went from the upper $5s to the upper $7s before pulling back, so I might wait for a pullback to $6.50 or so before getting in. Many are saying that the IPhone news could send Triquint to $10, and I believe that. However, after this big run-up, there is likely to be some profit taking, so don't overpay for the stock. Buying at $7.20 might give you a good long-term entry point, but $6.50 would be even better. The same is true for Skyworks, let it come down a dollar or two first. As you can see from the table, all of these are well off their 52-week highs. We'll look at the corresponding valuations next.

Valuations TQNT ANAD RFMD SKWS
P/E (2011 est. EPS) 12.40 N/A 18.67 11.98
P/E (2012 est. EPS) 11.79 N/A 12.55 10.67
Price/Sales (ttm) 1.29 0.81 2.01 3.00
Price/Book (mrq) 1.35 0.88 2.93 2.60
PEG (5-year) 0.93 -0.31 1.33 0.72

Anadigics has no P/E since it is losing money. As you can see, TriQuint and Skyworks have the lowest P/E valuations of the group, and also have the lowest price to expected earnings growth ratio over the next 5 years. Anadigics does have the lowest price to sales and price to book, but I'm never one to pitch a company that is losing money. Skyworks does appear to have a lofty valuation on price to sales, but that's only one category. TriQuint and Skyworks stand out as the two best in terms of valuations. Now we'll look at their growth prospects.

Revenues/EPS TQNT ANAD RFMD* SKWS*
Revs (2010) $879M $217M $1.05B $1.07B
Revs (2011 est.) $902M $154M $925M $1.42B
Revs (2012 est.) $983M $166M $1.07B $1.65B
EPS (2010) $0.83 $0.11 $0.62 $1.26
EPS (2011 est.) $0.58 ($0.49) $0.39 $1.87
EPS (2012 est.) $0.61 ($0.37) $0.58 $2.10

*Skyworks' fiscal year ends in September, RF's ends in March (numbers for them are thus 2011-2013 fiscal years).

In terms of both revenue and EPS growth, there is no question here that Skyworks is the number one. I'll give a slight edge for the number two spot to TriQuint only because it has revenue growth in both 2011 and 2012. Now remember, these are only current estimates. If both TriQuint and Skyworks do in fact supply components for the iPhone 4S, there is a chance that these numbers could be revised upwards, perhaps significantly. Now remember when comparing the two that the $2.10 for Skyworks for 2012 will end in September, while the TriQuint number will be the regular calendar number. Now the ability to get those growing revenues into growing earnings is always important, so we'll look at margins next.

Margins (ttm) TQNT* ANAD RFMD SKWS
Gross Margin 39.89% 31.54% 36.83% 43.76%
Operating Margin 14.60% -7.83% 11.53% 21.40%
Net Margin 19.47% -9.01% 10.60% 15.73%

Again, Skyworks and Triquint are the leaders of the group. One note I must point out. The TriQuint net margin for the past 4 quarters includes two quarters of carryforward losses for the company. In the two most recent quarters, TriQuint's net margin has been a little over 6%. There's not too much to discuss here, as the numbers really speak for themselves. Skyworks has a nice advantage. I'd like to see those net margins come up a bit for Triquint, so we'll see what happens with this iPhone speculation. Let's take a look at some balance sheet numbers.

Financials (mrq) TQNT ANAD RFMD SKWS
Current Ratio 4.41 7.22 3.25 2.91
Debt Ratio 13.14% 10.04% 32.47% 15.14%
Working Capital $421M $113M $403M $468M
Cash $136M $77M $123M $310M
Short Term Debt None None $45M $26M
Long Term Debt None None $114M None

All of these companies are in very good shape financially. They all have very clean balance sheets, with little to no debt and very few liabilities. Those cash balances are pretty fair as well, and I'm not even including short-term investments in them. If you remember from above, Anadigics has a market cap of only $167 million, so it has a lot of cash per share. All of these companies are in good position to grow their balance sheets, and a few of them may need to if they are involved in the iPhone business. There are no red flags here.

As you can tell from the data I've provided, Skyworks and TriQuint are the two best in this group of four. Both of them are in great shape, and this iPhone news, if true, should be beneficial for them as well. We'll get some more clarity from the companies soon. TriQuint reports its earnings October 26, and Skyworks reports on November 3. Now that you know what I think, let's see how analysts view these companies.

Ratings TQNT ANAD RFMD SKWS
Analyst Rating 2.5 2.9 2.2 2.0
Average Target $7.22 $3.69 $8.17 $32.00
Upside 0.42% 50.00% 12.23% 42.86%
Strong Buy 2 0 5 5
Buy 4 2 7 8
Hold 5 5 5 6
Underperform 1 1 2 0
Sell 0 0 0 0

The lower the analyst rating number, the better (1 is strong buy, 5 is sell). As you can see, the analysts also agree that Skyworks is the best. Now TriQuint does not appear to have a lot of upside currently, but remember, the stock just had a huge run. Also, we haven't heard from many analysts yet and I don't know if we will until after the quarterly reports. Both Skyworks and TriQuint are good names to play the iPhone, but they also are in great shape without it. Just remember to look for a smart entry point. Overpaying for a stock now will limit your upside and perhaps force you to sell at a loss if things don't go well for you early on. These are two good smaller plays on the iPhone, but of course, if you want to buy Apple instead, I wouldn't argue against that idea.

Source: Should You Buy Triquint And Skyworks Because Of The iPhone 4S?