Deep Dive: A hidden stock tip in Apple earnings? Watch these semiconductor companies, analyst says

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Remember the China-trade fear and sales decline that caused Apple’s stock to plunge? It might seem like ancient history, but the stock bottomed only a year ago. And now, with Apple’s quarterly numbers backing the huge increase in its stock price, it may be time for its biggest suppliers — and other semiconductor companies — to go along for the ride.

During Apple’s AAPL, +3.07%  earnings call Jan. 28, CEO Tim Cook cited “double-digit growth” in several developed and emerging markets. Jefferies analyst Craig Ellis called the results “an incremental plus” for Skyworks Solutions SWKS, -0.95% in a note to clients Jan. 29. He rates Skyworks a “buy,” with a $150 price target. That would make for a 25% gain from Skyworks’ closing price of $119.79 on Jan. 28. Ellis mentioned other major chip suppliers to Apple, which are listed below.

Here’s a two-year chart showing the total return (with dividends reinvested) for Apple, Skyworks Solutions, the iShares PHLX Semiconductor ETF SOXX, -1.60% (which tracks the PHLX Semiconductor Index SOX, -1.62% ) and the S&P 500 SPX, +0.32% :

FactSet

All saw tremendous pullbacks during the fourth quarter of 2018, but Apple led the subsequent charge forward. The semiconductor stocks have also pushed ahead, doubling the performance of the S&P 500, but trailing far behind Apple.

Apple is critically important to Skyworks, which said its semiconductor sales to the world’s largest company (by market capitalization) made up more than 10% of net revenue for each of the past two full fiscal years.

Apple reported record earnings and sales for its fiscal first quarter, with analysts waxing poetic about what could only be called a blowout, compared with consensus estimate.

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Skyworks reported an 8% decline in revenue for its fiscal first quarter ended Dec. 27, but also said revenue was up 8% from the previous quarter. Earnings-per-share of $1.50 for the first fiscal quarter were down from $1.60 a year earlier, but were up from $1.22 the previous quarter.

Apple’s stellar performance

Here are year-over-year comparisons for Apple’s sales and earnings for the past six reported quarters:

First, sales:

And now earnings per share:

So you can see how important Apple’s earnings report was on Jan. 28. Now the question is whether the good news is baked in. There may be plenty of additional improvement in growth numbers ahead, as the first-quarter total increase in sales was still a far cry from what went on in fiscal 2018. Analysts’ opinions vary, with Apple’s shares more than doubling over the past year through Jan. 28, with its forward price-to-earnings ratio increasing to 25.1 from 13.1 a year earlier.

On its long upward climb, Apple has shown a repeated pattern of sharp pullbacks before heading up again, meaning long-term investors need to remain patient. Here’s a 10-year price chart:

FactSet

The Apple chip gang

In addition to Skyworks, Ellis said the good news from Apple “augurs well” for other “wireless players,” including Broadcom AVGO, +0.13%  and Qorvo QRVO, -1.11%, as well as “memory makers,” such as Micron Technology MU, -1.19%, Lam Research LRCX, -0.72%, Applied Materials AMAT, -0.50% and Ichor Holdings ICHR, -1.15%.

He wrote that the “positivity could extend to volume-dependent back-end players,” including Cohu COHU, -1.70%, Kulicke and Soffa Industries KLIC, +0.32%  and Onto Innovation ONTO, -0.72%.

Here’s a summary of ratings and price targets for all the semiconductor stock names in this article, among analysts polled by FactSet:

You can click on the tickers for more about each company.

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