NXP Semiconductors (NXPI) is all about secure mobile connections. And that’s a very good space to be in today.
What’s more, this isn’t some new upstart looking to scale up and make a name for itself or sell out to a big name at premium once it’s established its niche and a decent client base.
NXPI is a spinoff of the legendary Dutch electronics firm Koninklijke Philips (PHG). And it builds chips that are all about secure communications in the hottest sectors in telecom today — connected cars, the Internet of Everything, wearables and cybersecurity, to name a few.
It was a pioneer in car-to-car and car-to-base chip communications technology, which is the foundation of smart car technology.
But it really made everyone’s watchlist when Apple (AAPL) decided to use its chips to run Apple Pay, its secure payments application.
Being linked to AAPL can be a blessing and curse, since your fortunes are then tied to massive company — at least in the eyes of investors. But NXPI has a broad and deep customer list that was established before AAPL even came on the scene; companies like Bosch, automotive supplier Continental and Samsung Electronics (SSNLF).
NXPI is a major player in the secure mobile space and works with the world’s largest companies in building chips and systems to make mobile communications secure and reliable.
And that was the reasoning behind its $40 billion purchase of Freescale Semiconductor (FSL) in March. Freescale has always been known for building high-performance chips that require little power. That sounds very attractive for a company looking to maintain a competitive edge in secure mobile communications, right?
Back to the size of this player: the merger makes NXPI the fourth-largest maker of semiconductors in the world. What’s more, Freescale already had a lot of exposure in the automotive space, so it was a perfect fit.
So, after a pretty exciting year, second-quarter earnings were highly anticipated. And NXPI didn’t disappoint.
Revenue was up 12% compared to the same quarter the year before. Earnings came in above the high end of its own guidance and easily beat analysts expectations.
Its biggest increases were on the AAPL side, where NXPI saw a 39% increase in secure connected devices revenue. Apple M8 motion co-processor sales helped boost NXPI’s secure interfaces/power revenue by 29%.
Now that kind of business will be baked in moving forward, and the bar will be set higher for NXPI. Plus, it’s currently trading at a price-to-earnings ratio of 73, so each quarter will be scrutinized from here on out, to be sure.
But NXPI is in the sweet spot; a great new business partner in AAPL, the big fish in one of the most important tech sectors today, and a wonderfully synergistic merger.
It’s not about wondering how long this run will last, but taking advantage of it while it continues.
The stock is up 27% year to date and 60% in the past year, so it still have plenty of legs left. And there are no significant competitors to vie for its clients, since few companies are in this niche or have the ability to scale to meet its clients’ needs.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
