Skyworks Solutions (SWKS): Lower price brings greater risk

By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report

From Cabot Wealth Advisory 3/8/10 Sign up for free Cabot Wealth Advisory e-newsletter

There are six chip stocks that look great today. All are U.S. companies, all enjoy growing sales and earnings now, and all expect continued growth in the year ahead.

Skyworks Solutions (SWKS)
of Woburn, Massachusetts, is the largest company of these six, with revenues on track to top $1 billion this year. It’s also the most diverse, making a variety of standard and custom chips for automotive, broadband, cellular infrastructure, energy management, medical and military markets. Skyworks had three years of revenue shrinkage in the past decade, and earnings trends are also less robust than in the companies above.  In the latest quarter, revenues grew 17% to $245 million, while earnings surged 59% to $0.27 per share. The after-tax profit margin was 19.5%.  Technically, SWKS is quite healthy, trading between 15 and 16.  And it’s the most heavily traded of these stocks, so it’s the easiest for institutions to buy. (Even easier are the big, well-known companies—Intel (INTC), Broadcom (BRCM) and Texas Instruments (TXN)—but their stocks are so well-known and over-owned that they can’t go up like these six can.)

The other five good looking chip stocks are Atheros Communications (ATHR), Cree Inc. (CREE), NetLogic Microsystems (NETL), Power Integrations (POWI) and Volterra Semiconductor (VLTR).

Of the six, my favorites are Atheros, Cree and NetLogic, because of a combination of fundamental and technical factors.

But I know that less experienced investors will be attracted to Skyworks and Volterra, because their stocks are lower-priced. Trouble is, those lower prices bring greater risk. Whatever you choose, be sure you manage risk appropriately, by buying on dips, and by keeping losses small.

Tim LuttsTimothy Lutts

President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.