Saturday, December 11, 2010

"Fundamental analysis depends on analysts' data, but what if estimates are too conservative and do not account for momentum?"

Dow Jones Industrial Average   11,410. (UP) Week ending 12-10-2010

Richard H. Driehaus

Greetings fellow shoppers. In his 1997 book "Investment Gurus" , Peter J. Tanous interviews legendary momentum trader Richard H. Driehaus, of Driehaus Capital Management, LLC. . Driehaus states when interviewed , "I've seen in the past that when companies report very positive surprises that analysts were almost all low. The analysts seem to prefer to be conservative rather than accurate. But when you are at a fulcrum or turning point, both analysts and companies can under-estimate growth."  Richard looks for earnings acceleration and positive earnings surprises.

        So we need to look at PE and make it "P" (price) divided by "E" (earnings) to the "X" power and put in an earnings acceleration factor in our fundamental analysis calculations. "X" could be the average earnings growth percentage gain in the last six quarters. This would give us a more accurate idea of the dynamic earnings growth and value of the company.

   So that is a lot of explaining to do, just to get to talk about Skyworks Solutions (Symbol SWKS, $28.04). SWKS has a one year Total return 95.4% and 3 year total return of 226.2%. "Skyworks Solutions, Inc. is an innovator of high reliability analog and mixed signal semiconductors. Leveraging core technologies, Skyworks offers diverse standard and custom linear products supporting automotive, broadband, cellular infrastructure, energy management, industrial, medical, military and mobile handset applications."  They have solutions for all air interface standards, including CDMA2000, GSM / GPRS / EDGE, LTE, WCDMA, WLAN and WiMAX. And here lies the fulcrum, the enormous exploding growth of the 4G and the above named interface markets.

Skyworks Solutions on November 15th, 2010  announced that "two of its power amplifier modules are enabling the first commercial long term evolution (LTE) handset in the United States. Samsung's newest 4G mobile phone, the Craft(TM), was launched in Las Vegas by MetroPCS and leverages the SKY77702 and the SKY77703. The carrier expects to cover 19 markets by 2011 and approximately 110 million LTE customers in major cities such as Dallas, Los Angeles and New York. Today's 4G systems offer a comprehensive solution where data and streamed multimedia are available to consumers anytime, anywhere at higher data rates than previous generation networks. In July 2010, Skyworks enabled the world's first commercial LTE device, Samsung's high speed 4G USB modem."

  Skyworks manufactures Gallium Arsenide (GaAs) power amplifiers.
 GaAs has some electronic properties which are superior to those of Silicon. It has a higher saturated electron velocity and higher electron mobility, allowing transistors made from it to function at frequencies in excess of 250 GHz. Unlike silicon junctions, GaAs devices are relatively insensitive to heat. Also, GaAs devices generate less noise than silicon devices when operated at high frequencies. They can also be operated at higher power levels than the equivalent silicon device because they have higher breakdown voltages. The chart below shows Skyworks Solutions market share.
The company will earn $1.46 per share in 2011 and $1.79 in 2012.
 With the discussion above, I feel these analysts earnings estimates may be too low. Sometimes you just need to acknowledge success
and  put the thing in your portfolio and "let it ride", (to quote Bachman Turner Overdrive.)
So add some Skyworks Solutions into your Christmas stocking
or give it as some Hanukkah Gelt, but get it tucked in for 2011. 
Happy Holiday Shopping,    Freewilly  

1 comment:

  1. Hmm. As soon as I saw formulas, I started to get confused, but they seem legit. Perhaps they should toss some of your analytical know-how toward our economic troubles and the country's financial woes would begin to dissipate! I believe it's possible!