Skyworks and the Internet of Things

04/22/2015 7:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

Our latest featured recommendation is all about making the gizmos that enable the Internet of Things, explains Tom Bishop, editor of BI Research.

It’s all about enabling wireless connectivity. Whether it be a laptop to a wireless router, a cell phone to a 4G network, or a security station to a remote camera or to a drone, or to some device that hasn’t even been invented yet.

Just in the wearables category, growth of 52% per year is projected through 2018. The connected home is expected to grow at 67% annually. And auto systems could grow 39% annually.

And at the heart of it all, supplying components for devices at either end of whatever is being connected, are chips made by Skyworks Solutions (SKWS), whose vision is to connect everyone to everything all the time.

By 2020, there should be about 1 billion personal computers on the planet and about 2 billion smartphones, but the Internet of Things is expected to grow to 70billion. Whichever, Skyworks chips are in all these categories.

In fact, Skyworks supplies chips and components to every single cell phone maker and stands to be a big beneficiary of the rollout of 4G in China, India, Latin America, and Eastern Europe where broadband penetration rates are low and population densities are high.

Skyworks is also expanding into traditional analog sectors like automotive, medical and industrial. These are highly attractive markets for Skyworks with longer product lifecycles, fewer competitors, and higher margins. So these strategic markets outside of mobile remain a strategic priority.

With 51% growth rate projected this year, Skywork’s P/E on this year’s earnings is only 19.6, yielding a PEG less than one, just the way we like it.

Skyworks had over a billion dollars of cash on its balance sheet as of yearend, which is plenty to fund its $300 million share buyback program or acquisitions.

Despite the stock’s unrelenting rise, I believe there is plenty of gas left in the tank, despite the stock’s unrelenting rise. Buy.

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