Editor's note: Today's market is hiding opportunities that most folks overlook. That's why Marc Gerstein – director of research at our corporate affiliate Chaikin Analytics – says you need to look at the full picture. This stock is one example of why one type of problem isn't always a deal breaker...
An important change is developing in the stock market right now...
The signals we look at are starting to pinpoint new bullish opportunities.
But there's a problem...
A lot of these opportunities appear to include what many investors would consider "deal breakers." One of these apparent deal breakers is falling earnings.
However, I'm here to tell you...
Falling earnings shouldn't always be an investment deal breaker.
We'll look at a specific example today. It's a newly "bullish" stock, according to the Power Gauge at Chaikin Analytics.
We'll cover how this stock has been rising despite a seemingly obvious deal breaker. And more important, we'll cover why we shouldn't rush to assume the price action is wrong...
Skyworks Solutions (SWKS) makes analog semiconductors for cellphones and radio frequency ("RF") systems. And last year, nearly 60% of its revenue came from tech giant Apple (AAPL).
But now, the chipmaker's earnings are heading lower...
Wall Street analysts expect Skyworks' earnings per share ("EPS") to drop 23% year over year in the next quarter. And for the fiscal year ending in September, analysts project $9.36 in EPS. That would be a nearly 17% decline from the previous year.
It gets worse...
For one thing, cellphone demand is softening. Overall cellphone shipments fell nearly 20% during the recent holiday period.
More important, Apple has reportedly started hiring its own RF engineers. So it could be looking to make some of its chips within the company. And that could devastate Skyworks.
And yet, Skyworks' stock is up around 22% so far this year. Meanwhile, the S&P 500 Index and the tech-heavy Nasdaq Composite Index are up roughly 4% and 10%, respectively.
The Power Gauge agrees with the market, too. This is our system for identifying buys and sells. And it currently ranks Skyworks as "bullish."
So... what gives?
Well, for one, the Apple news might not be as bad as it seems at first...
The company's new RF engineers probably aren't replacing Skyworks' Apple-related efforts. Instead, they're likely working to support these efforts. It would be very hard to replicate Skyworks' size and scale while also satisfying the increased complexity that devices need.
In any case, Skyworks is working aggressively to expand its reach beyond iPhones. It's setting out to help all kinds of devices "talk" to each other...
The "Internet of Things" continues to grow briskly. This long-term megatrend is entering all types of sectors – including automotive, factory automation, home connectivity, health care, aerospace, defense, smart energy, and more.
All these industries need the sort of connectivity Skyworks provides. And right now, it has the scale and expertise to lead in these kinds of services. You can think of the company as essential to less cool, yet incredibly useful areas.
Put simply, a lot of factors are in play with Skyworks (and any stock, for that matter).
Some factors – like falling earnings – might look like deal breakers. But in an ever-changing market, we need to look at a multitude of factors. It's about the sum of all the parts.
That's why the Power Gauge is so critical today... It analyzes 20 different factors for every stock in its universe.
When it comes to Skyworks, a nuanced picture emerges...
For example, the company's projected price-to-earnings ratio is "very bullish" today. (That means the ratio is relatively low.)
Also, short sellers are avoiding Skyworks. So this Power Gauge factor is "bullish" as well.
And as we noted earlier, the stock is now outperforming the broad market.
That kind of momentum deserves respect – even if the company appears to have some deal breakers at first glance. It's why we shouldn't rush to assume the price action is wrong.
We can expect to see more stocks with hidden potential as the market continues to turn around...
Many of the ideas you'd like to invest in might have an apparent deal breaker behind them. But that's exactly why the Power Gauge looks at opportunities from every angle.
It's important to get the full picture before you put any money to work.
Editor's note: The Power Gauge is a one-of-a-kind stock-picking system... built by Marc Chaikin – founder of Chaikin Analytics – to help regular investors get access to Wall Street-level analyses. Now, Marc is stepping forward with a major warning. In short, he believes the Federal Reserve's next move could make or break your portfolio in 2023. And he's sharing a roadmap with the exact steps you should take right now... Get the full story here.
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