Why It Is Time to Buy Chip Supplier Skyworks Solutions Right Now

Over the past 12 months, wireless handset chip supplier Skyworks Solutions' (SWKS) fortunes have mirrored those of its primary customers, Apple and Samsung Elecronics.

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Skyworks Solutions' stock hasn't performed well.

The reliance on Apple and Samsung Electronics been a major problem over the past couple years for Skyworks Solutions. The two mobile phone manufacturers' businesses have declined along with demand for smartphones. 

That said, Skyworks Solutions has consistently either delivered an in-line performance or beaten expectations, and it is taking steps to diversify.

Vetr, which provides crowd-sourced ratings of companies, upgraded Skyworks Solutions on Tuesday to strong buy from buy.

A full 21 equity analyst researchers have a buy rating on the stock. 

Shares were about flat in Wednesday trading. Now is the perfect opportunity to grab shares at a bargain.

Although Skyworks Solutions' recent light guidance may have raised concerns on Wall Street, the company's projections look solid. Skyworks Solutions' first-quarter guidance for earnings at $1.58 a share is ahead of analysts' expectations, as is its revenue guidance of $894 million to $911 million, which is above the consensus at $893 million.

Skyworks Solutions is working to reduce its inventory.

In fact, Skyworks boasts of a best-in-the-sector track record for delivering financial performance.

An operating margin of 34.43% (for trailing 12 months) is enviable. Other Apple suppliers like Cirrus Logic (16.75%) or peers like Qorvo (barely 3.01%), as well as giants such as Broadcom (14.49%), carry much lower margins.

Skyworks' Internet of Things (IoT) movements also demand attention from investors.

With predictions suggesting billions of devices going online over the next few years, the sheer demand for specialized communications semiconductor chips will expand exponentially. The company is intensely exploring IoT possibilities and is pushing hard to win design contracts in smart TVs, drones, automobiles, and industrial IoT devices.

Skyworks trades at a 0.80 price-to-earnings-growth (PEG) ratio (five-year expected). Larger rival Taiwan Semiconductor Manufacturing has a PEG ratio of 0.99, Qualcomm operates at 1.32, and Texas Instruments at 2.2.

Skyworks is looking to use its superior financial leverage to grab new assets, including Microsemi, which manufactures chips for defense, communications and aerospace. The company could help Skyworks diversify its earnings beyond smartphones.

It's an interesting development, given that Skyworks lost a bidding war to Microsemi for PMC-Sierra last year. 

The 22 analysts offering 12-month price forecasts for the stock are suggesting a more than 13 appreciation for Skyworks' shares. That makes the current price a bargain opportunity for long-term gains.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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