Recently we posted an article showcasing “Besides Apple, What Other Companies Make Money Off the iPhone 4s?“ When looking at which companies other than Apple (NASDAQ: AAPL) profit off the iPhone we have come across two component suppliers that we believe are strong long-term investment opportunities as well. The upcoming release of the iPhone 5 should do nothing to hurt this theory so here are the two stocks we think have great potential to rise:
Skyworks Solutions (Nasdaq: SWKS) makes the GSM/GPRS Front End Module. Their recent drop opens up a potential buying opportunity for many investors. Since June 20th, shares have fallen a total of 11% sliding from $28.18 to $25.00. Despite the stocks recent slide, we still think SWKS is a strong buying opportunity and we are not alone in this theory. Of the 18 analysts current covering SWKS 5 have it as a Strong Buy, 12 Buy, and 4 Hold. The same analysts believe that in the next 12-Months, SWKS will be trading somewhere between $32-$40. If this is true, SWKS will appreciate between 28%-60% making it a great value pick for investors.
It’s not just speculation that backs up this stock, from top to bottom strong numbers help reassure both investors and analysts. Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. SWKS’ gross profit margin is 47.7%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. SWKS’ operating profit margin is 12%. Because the business models of companies vary so widely, it can be difficult to compare net profit margin ratios for companies in different industries. Net margin is 13.6%. The debt ratio measures the leverage of a company, and a company’s leverage is a good way to assess risk. SWKS’ debt ratio of 14.3% is on the low side.
This indicates that the company engages in conservative financing with opportunities to borrow in the future at no significant risk. However, one thing to note with this ratio: it isn’t a pure measure of a company’s debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable. One more great number is their PEG Ratio of 0.90. As you can see, SWKS has many reasons backing it up as a viable investment opportunity.
Broadcom (NASDAQ: BRCM) makes a combo chip (802.11 a/b/g/n + Bluetooth + FM Radio). As an investment we think they have a great potential going forward and there book of business and numbers help back this up. BRCM has a gross profit margin of 53.2%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. With an operating profit margin of 2.7%, BRCM has a high one relative to its gross profit margin. A high operating margin indicates a high margin of safety in an investment. Adding to this, BRCM holds a PEG Ratio of 0.74, a bullish indicator for long-term investors. While other ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. The company has a net profit margin of 10.6%. When making an investment decision looking at a stock’s potential, valuation ratios are very useful as a basis for seeing where the stock is currently trading at. Is the stock price too high, reasonable, or a bargain.
On the other hand, dividend yield is a way to measure how much cash flow you are getting for each dollar invested in an equity position – in other words, how much “bang for your buck” you are getting from dividends. BRCM has a dividend yield of 1.2%, which is fairly low. If you are an income investor, this stock may not be attractive to you. A higher dividend yield may indicate a risk of a fall in the price of the security, or a cut in the level of dividend payments, either of which would have the effect of dropping future returns. For those of you who don’t invest relying on dividends solely then BRCM is a investment play you should take a look at.
The company holds strong numbers from top to bottom which has led the company to catch the eye of many analysts all who are high on BRCM. Of the 38 analysts who currently rate BRCM, 15 have it as a ‘Strong Buy’, 20 think it’s a ‘Buy’, 8 say ‘Hold’ and only 2 think it will ‘Underperform.’ This is another major plus for BRCM as strong analyst coverage helps build up excitement for the stock and makes it known to both institutional and retail investors. Long-term we think BRCM is a good investment opportunity and we think over the course of the next 12-Months the stock will rise to over $50 per share.