As you can see on the attached chart, Skyworks (NASDAQ:SWKS) price is moving sideways. But is underperforming the market as indicated by the comparison of price to the SPX. That is shown as SWKS:SPX on the chart. The big question for portfolio managers is will this start outperforming? For the answer we turn to the fundamentals.
We want to drill down on what our SID system is telling us. It is showing a fundamental buy signal. Plus it has an Implied Return for 12 months calculated at 11.6% based on analyst published targets and ratings.
We can check the fundamentals using 3 websites: Nasdaq.com, yahoo.com and finviz.com. Nasdaq.com gives us the starting point to see what the analysts are saying before doing our own fundamental analysis. After all they are paid hundreds of thousands of dollars to do this for us, so we might as well pick their brains. Some 13 out of 19 analysts have a buy rating. We will check the fundamentals to see why. Also the consensus target is 85 while the high target is 100. Using 85 gives us an 8% implied return. Obviously our proprietary calculation is higher than that. If the earnings are good today, as we expect, than perhaps the analysts will raise their targets higher to get the 11.6% we are looking for in 12 months. Finally lets look at earnings. They are suppose to grow from $5.16 to $5.76, about 11 to 12%. With a PE around 13 and a PEG at 0.78, we know this is not overvalued. Unfortunately that $5.76 is based on only one analyst. But the nagging question is why such a bargain? The consensus earnings forecast for this current quarter is 1.48, a line in the sand. But we all know it will trade on forecast, more important than today's earnings.
Let's move on to finviz.com and dig deeper into the fundamentals. I always like to look at the most recent analyst listed. Goldman with a downgrade to neutral--ugh! That reminds me that one analyst on Nasdaq had a sell! This may mean the bargain is no bargain. It also explains why price is waiting for earnings to come out. It is possible the earnings news will be bad. The growth has dropped in half over 5 years. It is a relatively small company which means it cannot easily manage earnings. Like Apple it has turned from being a growth stock to a value stock. Excellent financial shape but the PEG is probably wrong. I don't like the high short ratio because I don't expect a positive surprise that will squeeze the shorts. Any miss on earnings and this is ready to fall. That is what the shorts are betting. The stochastic on the chart shows price is overbought.
The options players are looking for an 8% move after earnings, according to an article on Yahoo. The shorts are betting that will be down. The analysts are more sanguine or they are procrastinating the downgrades until after earnings. The smartest guys on The Street, the portfolio managers do not agree with the shorts. But the smartest money on The Street is suppose to be the shorts. There is the conundrum. My guess is the analysts will be right about the earnings, the portfolio managers will see no reason to sell after earnings, but neither will they buy unless there is a positive surprise.
My guess is earnings will be as expected, there will be some selling on the news and if it goes down 8% the buyers will rush in for the bargain that will beat the Index in 2017.
Disclosure: I/we 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.