An important change is developing in the stock market right now…
The Power Gauge is starting to signal newfound “bullish” opportunities.
But there’s a problem…
A lot of these opportunities appear to include what many investors would consider “dealbreakers.” One of these apparent dealbreakers is a company with falling earnings.
However, I’m here to tell you…
Falling earnings shouldn’t always be an investment dealbreaker.
We’ll look at a specific example today. It’s a newly “bullish” stock.
We’ll go over how this stock is rising despite a seemingly obvious dealbreaker. And more importantly, we’ll cover why we shouldn’t rush to assume the price action is wrong…
Skyworks Solutions (SWKS) makes analog semiconductors for cellphones and radio frequency (“RF”) systems. And last year, nearly 60% of its revenue came from tech giant Apple (AAPL).
But now, the chipmaker’s earnings are heading lower…
Wall Street analysts expect Skyworks’ earnings per share (“EPS”) to drop 17% year over year in the next quarter. And for the fiscal year ending in September, analysts project $9.77 in EPS. That would be a roughly 13% decline from the previous year.
It gets worse…
For one thing, cellphone demand is softening. Overall cellphone shipments fell nearly 20% during the recent holiday period.
More importantly, Apple has reportedly started hiring its own RF engineers. So it could be looking to make some of its chips within the company. And that could devastate Skyworks.
And yet, Skyworks’ stock is up around 24% so far this year. Meanwhile, the S&P 500 Index and the tech-heavy Nasdaq Composite Index are up roughly 9% and 17%, respectively.
The Power Gauge agrees with the market, too. It currently ranks Skyworks as “bullish.”
So… what gives?
Well, for one, the Apple news might not be as bad as it seems at first…
The company’s new RF engineers probably aren’t replacing Skyworks’ Apple-related efforts. Instead, they’re likely working to support these efforts. It would be very hard to replicate Skyworks’ size and scale while also satisfying the increased complexity that devices need.
In any case, Skyworks is working aggressively to expand its reach beyond iPhones…
Machine-to-machine connectivity through the “Internet of Things” continues to grow briskly. This long-term megatrend is crossing all types of sectors – including automotive, factory automation, home connectivity, health care, aerospace, defense, smart energy, and more.
All these things require the sort of connectivity in which Skyworks leads with its scale and expertise. You can think of the company as essential in less cool, yet incredibly useful areas.
Put simply, a lot of factors are in play with Skyworks (and any stock, for that matter).
Some factors – like falling earnings – might look like a dealbreaker. But in an ever-changing market, we need to look at a multitude of factors. It’s about the sum of all the parts.
That’s why the Power Gauge analyzes 20 different factors for every stock in its universe.
When it comes to Skyworks, a nuanced picture emerges…
For example, the price-to-sales and projected price-to-earnings ratios are both “bullish” or better. (That means these ratios are relatively low.)
Also, short sellers are avoiding Skyworks. So this Power Gauge factor is “bullish” as well.
And as we noted earlier, the company is now outperforming the broad market.
That kind of momentum requires respect – even if the company appears to have some dealbreakers at first. It’s why we shouldn’t rush to assume the price action is wrong.
We can expect to see more examples as the market’s turnaround continues…
Many of the stocks you’d like to invest in might have an apparent dealbreaker behind them. But that’s exactly why the Power Gauge analyzes 20 different factors for every stock.
It’s important to get the full picture before you put any money to work.
Good investing,
Marc Gerstein
