Wireless Connectivity Explosion to Catapult This Stock Higher
Here is another stock that highlights one of my favorite methods to pick promising technology stocks. You must have heard of it before; it is called the “pick-and-shovel” method and, with its help, we can select stocks that benefit from supplying key components and services to a large number of companies that stand to gain from the new emerging technologies.
Today’s pick-and-shovel stock is Skyworks Solutions Inc (NASDAQ:SWKS), which is making waves in the world of wireless connectivity. The company builds innovative networking chips that help connect people, places, and things. It is one of my top investment ideas for the following reasons.
Skyworks Solutions is levered to the wireless connectivity trend. In a world rushing to connect everything with everyone all the time, Skyworks stock is ready to take on the challenge, and benefit its investors in the process. With the explosion of wireless connectivity in the age of rising mobile phones and the fast-emerging Internet of Things (IoT), the company’s products will continue to be in high demand in the coming years.
Let us take the example of smartphones. Skyworks’s wireless connectivity equipment gears these smartphones for high performance and lets users stream videos, buy goods and services online, or post pictures on social media platforms. Add to this the vast untapped potential in emerging and other markets, where smartphones have still to gain more market share, and you get the idea about how mobile connectivity is bound to grow.
As per the recent Annual Visual Networking Index (VNI) forecast by Cisco Systems, Inc. (NASDAQ:CSCO), the total number of smartphones (including “phablets”) will be over 50% of global devices and connections by 2021. And, by that time, smartphones would also have surpassed four-fifths of mobile data traffic. Moreover, about 78% of the world’s mobile data traffic will be video. The Cisco report also forecasts that mobile data traffic will grow at a compound annual growth rate (CAGR) of 47% from 2016 to 2021. (Source: “Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2016-2021 White Paper,” Cisco Systems, Inc., March 28, 2017.)
Not only this but, by the end of 2021, North America will have 99% of its installed base converted to smart devices and connections as the following table shows.
Regional Share of Smart Devices and Connections (% of the Regional Total)
Central and Eastern Europe
Middle East and Africa
Skyworks is well positioned for this growth in the era of smarter devices, which are leveraging the company’s technology. The rise in the number of wearables, automated homes, connected cars, etc. should keep pushing SWKS stock higher.
Moreover, the company is focused on being a strong player in the field of fifth-generation (5G) wireless technology, which is going to be pervasive in just a few years. This advancement is the result of people creating and consuming a big pile of data every hour around the globe. Users want the data to travel as fast as possible, making them flock to the 5G network, which has the potential to deliver these features. SWKS is positioning itself well to gain from this development in the future.
The company’s financial results are evidence that the innovative efforts are bearing fruit. Skyworks announced its Q2 FY17 results last month, which were above expectations. Revenue of $851.7 million was up by 10% year-over-year, and the company generated $235.9 million in cash flow from operations. It also announced an upbeat outlook for the third quarter. (Source: “Skyworks Exceeds Q2 FY17 Expectations,” Skyworks Solutions Inc, April 27, 2017.)
Skyworks has been delivering on its promise, and the following SWKS stock chart is proof of this.
Chart courtesy of StockCharts.com
SWKS stock has returned almost 300% over the past five years as the demand for Skyworks’ products kept on accelerating. Going forward, the trends are indicative that there could be big upside to Skyworks stock, given the strong tailwinds.
The Bottom Line on Skyworks Stock
Wireless connectivity will continue to grow in the future as more and more consumer and electronic devices get connected to each other in our quest for being connected to our family, friends, and homes all the time. Skyworks’s products and technologies shall be central to this development.
Moreover, Skyworks is a key supplier of chips to Apple Inc.’s (NASDAQ:AAPL) “iPhone,” so the success of the upcoming iPhone could be a good trigger for SWKS stock in the coming months. This pick-and-shovel stock could get volatile at times, but the long-term trend remains upbeat.