A decade and a half ago, Skyworks Solutions (SWKS) would have been a company from a science fiction novel expanding in a futuristic world with demands and interests we new 21st-century humans could only imagine.
But today it’s real. Very real.
SWKS makes computer chips and specializes in mobile and Internet of Things (IoT) systems — two of the fastest-growing communications sectors in the world today.
It’s no wonder the stock is up 20% year to date and up 56% in the past year. All that growth, plus it kicks off a 1.2% dividend as a tip of the hat to shareholders. That’s a nice touch.
The explosion of mobile computing has ramped up the niche where SWKS is focused.
Its top clients are some of the world’s best-known blue-chip firms: Cisco (CSCO), Dell, Ericsson, General Electric (GE), Microsoft (MSFT), Northrup Grumman (NOC), Google (GOOG, GOOGL), Bose, Huawei, Honeywell (HON), HTC, Lenovo (LNVGY) and LG Electronics.
And if you notice, the list is more than just makers of handsets. It’s all about connectivity.
For example, Honeywell is major original equipment manufacturer for the auto industry and also a leader in climate control systems for buildings and the aerospace sector. These sectors are turning toward ‘smart’ technology, or IoE, using sensors. These sensors monitor everything from fluid levels to tire pressure to heating and cooling information — so drivers, pilots and engineers can be connected and adapt in real time.
According to Cisco, projected annual growth of mobile data consumption is projected to grow by 57% annually through 2019.
And within that data growth, IoT devices are projected to grow from 6 billion devices in 2012 to 43 billion by 2020. Smartphones are expected to double from 1 billion to 2 billion over the same period. You can see the outsized opportunities IoT provides.
So, SWKS has hitched its wagon to one trend that is expected to double in the next five years and another that is expected to grow by a factor of 8 in the next five years. And it is already is working with the biggest players in the mobile and IoT sectors.
That is certainly promising.
SWKS is also a very attractive takeover play. We’ve already seen some mega-mergers in the chip space already this year and SWKS is trading a $16 billion market cap. Intel (INTC) is almost 10 times that size and generates that much cash on hand every quarter.
INTC knows that it has to transition out of the server and desktop market and has started that transition already. Purchasing a well-positioned up and comer for a hefty premium would be a lot cheaper — with a more certain outcome — than trying to muscle in on Skyworks’ market share and grab some of its business.
Another thing to bear in mind is SWKS is very well positioned in the new 4G LTE systems that most mobile carriers are adopting. Without going into too much technical detail, 4G LTE is the new standard because it is significantly faster moving data than other 4G systems.
Having sensors and chips that are on the cutting edge of mobile telecommunications keeps Skyworks a market leader as entire systems around the world upgrade to 4G LTE and then to 5G LTE, which is an order of magnitude faster than 4G LTE and significantly more complex.
SWKS is performing like the niche leader in a rapidly expanding sector and that growth — both the company’s and the sector’s — has a long way to go before it slows down. And whatever incarnation SWKS is in over the long term, it’s worth having a piece of it now.
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.
