Skyworks Rides the 4G Build-Out

 | Dec 13, 2012 | 12:00 PM EST  | Comments
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Smartphones, tablets and other mobile devices are migrating to the latest 4G cellular network standard, Long-Term Evolution (LTE). Moving to a more robust infrastructure is necessitated by the exponential increases in data and network traffic that these devices create. This presents a secular investment theme for the next few years as carriers spend tens of billions of dollars to upgrade their networks and consumers continue to ramp up their purchases of LTE-enabled devices.

Tech stalwarts such as Cisco Systems (CSCO) and Qualcomm (QCOM) should see increasing revenue streams from this ongoing development. I own both of these market leaders in my portfolio, but I would like to concentrate today on a smaller tech player that should also benefit from this migration, is selling at a cheap valuation and has solid growth prospects. It works for both value and growth investors alike at current price levels.

Skyworks Solutions (SWKS) is a semiconductor maker that manufacturers radio frequency, or RF, chips that allow these new mobile devices to communicate with basestations to receive and transmit data.

Seven reasons SWKS is a solid play at just over $22 a share:

  • Revenue growth should be in the low teens for both full year 2012 and 2013, and the stock has an attractive five-year projected price-earnings-growth ratio of under 1 (0.68).
  • The company has produced consistent revenue growth over the last five years, over which time sales have increased at just over a 15% compound annual growth rate. It has also grown earnings over that period at 29% annually on average, even if earnings-per-share growth has tended to be lumpy.
  • Skyworks' chips are finding their way into an increasing number of Apple (AAPL) products. It also supplies Qualcomm and Samsung. It also just announced support of Microsoft's (MSFT) Windows 8 platform and is already in some HTC products utilizing that operating system.
  • The company should benefit from growing wireless connectivity in other aspects of daily life, for example, autos and smart homes.
  • The company has met or beat earnings estimates each of the last 12 quarters. The stock is cheap at just over 9x forward earnings, a discount to its five-year average (13.0).
  • Analysts currently believe SWKS has significant upside. The 16 analysts that currently cover the stock have a $31.50 median price target on the shares.
  • Finally, Skyworks has a solid balance sheet, with more $300 million in net cash on the books.

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