Top Picks 2020: Qorvo (QRVO)

01/22/2020 5:00 am EST

Focus: TECHNOLOGY

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Chip stocks have been a bit bifurcated as a group, with some names that began showing strength in the summer waffling, while others that emerged in October-November (many that are tied to the 5G smartphone boom) are looking peppy, observes Mike Cintolo, editor of Cabot Top Ten Trader.

In our mind, Qorvo (QRVO) is one of the leaders of that 5G trend, with radio frequency products and solutions for a variety of applications (defense, Internet of Things, satellites, etc.), but the big draw is the aforementioned smartphone trend.

There is competition from Broadcom (AVGO), Skyworks (SKYW) and others, but the complexity of 5G smartphones has (at least at this point) phone makers sticking with high-quality suppliers with integrated (not one-off) systems, which plays into Qorvo’s hands.

The big idea here is the size of the opportunity — most analysts expect 200 to 250 million 5G smartphones to ship in 2020, but Qorvo actually sees 300 million as the target, with a much larger opportunity in 2021 and 2022.

The company earnings have flattened out in recent quarters, but the stock is strong because the Q3 report crushed estimates and management’s meaningful hike in estimates has big investors thinking the boom has begun.

The Q4 revenue forecast was boosted to $850 million (up from $760 million estimated beforehand), and while the consensus is for $6.57 per share next fiscal year (up 16%), many are thinking $7.00 to $7.50 is more likely. Chip stocks are always tricky investments, but Qorvo looks near the start of a big growth wave.

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