This is one of the worst opening of the US stock market in months. The S&P 500 $SPX500 is down by 1.5% while the Nasdaq $NSDQ100 down by over 2%. The reason is the outbreak of the Coronavirus. This has also affected oil $OIL prices as travel is affected. As for our portfolio, we are down by 0.7% today. Higher gold $GOLD prices pushed Polymetal $POLY.L up. Another stock doing great today is Allergan $AGN, our largest holding as the company sells one of their subsidiaries to Nestle $NESN.ZU indicating that the merger with AbbVie $ABBV is coming soon. Should we be scared of the Coronavirus? It could keep the markets volatile in weeks or even months but in the long-term, it will be forgotten just like the zika virus, ebola, etc. This time things can be worse since it the second largest economy in the world which is being affected. But long-term, this will be only noise.
SKYWORKS SOLUTIONS Stock still CHEAP
A few months ago, I said that Skyworks Solutions $SWKS is a value stock even if we ignore 5G. Since that video, Skyworks Solutions gained 70% and it is really the stock which contributed the most to my gains in 2019.
Skyworks Solutions is one of the largest suppliers of Apple $AAPL with 51% of their sales coming from Apple. Overall, 67% of their sales come from their three main customers, Apple, Samsung $SMSN.L and Huawei. They make semiconductor chips that acts as antennas to help you connect to the network.
Qualcomm $QCOM predicts that in 2020, there are going to be 200 million 5G smartphones sold. They reiterated that prediction at CES 2020 and added that in 2022, there are going to be 750 million 5G devices sold. Another company which will win from 5G is American Tower $AMT and according to their predictions, by 2022, half of all smartphone sold will have a 5G chip. It is estimated that Skyworks Solutions has 50% of market share in the smartphone market and I took a big margin of safety of 60%. How much money can Skyworks Solution make and what is the intrinsic value of the company?
We are assuming that over the long-term growth of smartphone sales can grow by 3% annually, we use the predictions of American Tower to know how and when 5G will overtake 4G and based on the numbers given to us by Skyworks Solutions on how much money they make on 3G, 4G and 5G chip, we can estimate future cash flows of Skyworks Solutions. Using a discount rate of 9%, we find an intrinsic value of $26 billion. It means that right now, Skyworks Solutions is still cheap.
However, we should be careful as Skyworks Solutions is highly correlated with Apple $AAPL . If Apple stock crashes, so will Skyworks Solutions. However, if we compare Skyworks Solutions with Apple and Cirrus Logic $CRUS (The company the most dependent on Apple - 80% of sales), then we see that Skyworks Solutions is the one with the lowest PE ratio. Even compared to historical PE ratios, it seems cheap. The risk is still here because SKyworks Solutions is dependent on Apple but this is a great company, without any debt, but considering the amount of money this company can make on 5G and the IOT, it seems that it is still a good investment.
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https://www.youtube.com/watch?v=_29ju_1epEA&list=UUPO3uUyoXSaFWG-Ldq1mqEQ
You can access my full analysis of Skyworks Solutions here:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/13607861
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