Skewed by Apple

 | Feb 01, 2013 | 10:30 AM EST
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Equities completed their best January since the 1990s on Thursday. The overall market was up 5% as the year started strong and stocks ground higher throughout the month. What makes this performance all the more impressive is that it was accomplished without the world's most valuable company by market capitalization, Apple (AAPL). The Cupertino, Calif., tech giant had its worst monthly performance since 2008 and was down some 15% in January. The shares represent a good long-term entry point at this level, but when sentiment will turn on the shares is something that I will leave to others to speculate.

What is obvious from early earnings reports is that the market set expectations too low for companies that supply components for Apple's products. In part, this is because only in the rarefied world of Apple expectations does selling almost 48 million smartphones in a quarter count as a disappointment. In addition, many of these suppliers have significant presence with other smartphone manufacturers, or have customers outside the space altogether.

Suppliers Qualcomm (QCOM) and Skyworks Solutions (SKWS) reported earnings in the last 48 hours. Qualcomm, which supplies to and receives licensing royalties from just about every smartphone manufacturer, reported earnings that beat on the top and bottom lines. It also raised guidance for the coming quarter. The shares responded with a 4% gain. Skyworks blew away estimates and its stock skyrocketed by better than 12% Thursday. The company gets approximately 25% of its revenue from Apple, but it also gets some 17% of sales from Apple's main competitor, Samsung. Oppenheimer reiterated its Buy rating and said it believes the company is gaining market share in the power amplifier market.

This should bode well for suppliers that have yet to report. I would watch RF chipmakers Avago Technologies (AVGO) and TriQuint Semiconductor (TQNT). Avago gets approximately $2.50 in sales per iPhone 5. The stock sells for less than 12x forward earnings and RBC Capital Markets initiated it last week with an Outperform rating. TriQuint reports earnings next Wednesday. I have increased my positions in both stocks. RF competitor RF Micro Devices (RFMD) reported earnings and revenue that beat analysts' expectations last week. It also provided better-than-expected revenue guidance, and the stock responded with a nice gain. Look for similar results from TriQuint in its report. The shares have been stuck in a narrow trading range for more than a year. Hopefully, the report will provide a catalyst to help the stock break out of that trading range. Longbow initiated the stock as a Buy in January.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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