At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
If not now, when? If not Apple, who?
$580. $570. On a good day -- maybe $550. Even after a fairly steep descent these past two months, Apple
Last week, investment banker Canaccord Genuity answered this question with a definite "Yes" as it detailed the pluses and minuses of three separate components makers riding the smartphone revolution right alongside Apple: Skyworks Solutions
The good...
I won't keep you in suspense. Of the three companies, Canaccord sees Skyworks as the clear winner, and the only stock of the three that's worth buying. "Skyworks supplies [chips to] most of the top-selling global smartphones," writes Canaccord. Of the major players, "Skyworks has the broadest RFIC customer base and is growing its overall RF content share in the smartphone market." What's more, because Skyworks "should maintain and expand its industry-leading margins," the company is likely to grow "faster than the market."
Canaccord sees the industry at large growing at about a 14% annualized pace over the next several years. Most analysts think Skyworks should be able to manage 15% growth, and Canaccord appears to believe it will do even better than that. If it's right, then Skyworks' share price of about 16 times annual free cash flow means the stock is at worst fairly priced -- and probably actually pretty cheap.
The bad...
In contrast, about the best you can say about RF Micro and TriQuint is that there might be some value there, and only if a lot of things go right. According to Canaccord, RF Micro has had a rough 2012 so far, suffering from "declining revenue due to softer sales to [Nokia
Meanwhile, we're looking here at a stock selling for a quadruple-digit P/E ratio (although free cash flow is a bit better than that), but with only 13% long-term growth projected. Best case, the stock's fairly valued on superior free cash flow, but RF Micro is still no bargain.
As for TriQuint, what can I say? The stock's a mess. While Canaccord sees "long-term growth" in TriQuint's future, margins are weak and "it could take until 2014 for the company to diversify its customer base in order to grow sales and generate stronger margins." In the meantime, TriQuint's a 25 P/E stock with 5% earnings growth prospects, and negative free cash flow to boot. Given that Skyworks looks so much more attractive, and that even RF Micro's numbers aren't quite as bad as TriQuint's, there's really no reason to want to own this one at this time.
...and the obvious
Of course, this still leaves the question of whether investors looking for an angle on Apple aren't putting themselves to a whole lot of trouble for no good reason. I mean, Apple stock only costs 14 times earnings, for heaven's sake, and it's growing earnings at 22%! If you ask me, too many investors spend too much time trying to do things the hard way. Sure, sometimes, this pays off. For example, I happen to think the stock featured in our recent report on mobile communications actually will do as well as Apple. (Download the report for free today, and see if you agree.)
While I get why Canaccord is looking into all the options, and I commend the analyst for coming to the correct conclusion regarding Skyworks, as compared to RF Micro and TriQuint, the fact remains: When you get right down to it, the best way to profit from Apple's success is to just go ahead and buy Apple. If you want to stay up to date on the latest exclusive analysis from our top tech analyst, check out our new premium Apple research service today!
