As many Foolish readers are aware, U.S. stock markets continued their plunge on Monday with the Dow posting its largest ever point decline in the first few minutes of trading, down nearly 1,100 points. Although markets recovered from the initial free-fall, they were still down over 3.5% by the end of the trading day. However, there were two tech stocks that fought the sell off and posted gains for the day: Skyworks Solutions Inc. (NASDAQ: SWKS) and Mobileye N.V. (NYSE: MBLY).
Everyone loves a great bull market where almost all stocks are going up unanimously, which is what we have experienced over the last few months and even years. The only downside is that investors can sometimes be at a lack of information because they don’t know if market participants are buying up a stock because it is a great company or because they are buying everything indiscriminately.
It is only when the tide goes out that you can see which companies investors are sticking with through thick-and-thin. For SWKS and MBLY, both price and volume were up on Monday, showing strong support, even in the face of everything else being sold.
Skyworks Solutions – Riding the 4G LTE Trend
Skyworks may not be a household name, but it is guaranteed you probably have multiple devices that use Skywork’s chips. The chip maker’s high performance radio frequency, analog and mixed signal semiconductors are found in smartphones, tablets, GPS devices, cars, and even medical, industrial, and military applications.
It is also well known they are an Apple supplier, and while they do not disclose what percentage of their revenue comes from Apple, analysts have estimated it could be as high as one-third. So with China potentially slowing, and Apple's stock falling, why did Skyworks not decline as well?
The market was spooked by fears of a general slowdown in China, but SWKS’s revenue from China is only about 20%-25%. Some have incorrectly assumed their revenue from China is greater than 80%, but this is likely using sales figures to electronic manufacturing and assembling customers in China, not end-customers.
Apple’s potential growth slowdown is a risk, but the beauty of Skyworks is they are largely agnostic when it comes to brand -- whether it’s an Apple, Samsung or Chinese branded smartphone doesn’t matter as long as they are using Skyworks chips. Non-mobile business is approximately 25% of revenue, giving the company some diversification of revenue as well.
Related is the concern that smartphone growth is slowing due to saturation. But Skyworks has been focusing their product differentiation at the high-end of 4G LTE chips, so the bigger driver of growth is not necessarily smartphone growth but the transition to 4G as those chips carry a higher price tag and a fatter profit margin, not to mention SWKS gets 3 to 4 times more content in 4G phones. Remember that 4G is still relatively new in China -- only 19% of China’s mobile users are on 4G, which leaves a massive runway of growth ahead -- over 1 billion mobile users to be exact!
Skyworks has shown impressive growth with sales up 38% last quarter on a year-over-year basis. With a P/E ratio of around 22 times current and 18 times forward earnings, it certainly appears to be a reasonably priced stock, especially given its high growth. Investors will also get a small dividend to boot, currently yielding approximately 1.2%.
Mobileye – Autonomous Cars for Today and Tomorrow
Mobileye is an Israeli-based designer of chips and software used in vehicles for driver assistance and collision avoidance systems. The company has a long-term goal of using their technology to bring completely driverless cars into reality, but in the meantime they are already selling their technology to help with “semi-autonomous” applications such as back-up cameras, obstacle and lane detection.
Unlike Google or other tech companies, Mobileye is one of the only “pure-plays” for autonomous vehicles. Their current customers include many of the tier 1 auto manufacturers such as GM, Ford, BMW, and Hyundai and they are working with Tesla and GM to develop self-driving cars.
Mobileye has also been putting up remarkable growth figures. Sales last quarter were up 57% year-over-year, exceeding expectations, and its three-year revenue growth has been over 90%. Like SWKS, Mobileye appears to have a long runway for growth as cars will increasingly become more autonomous.
Further, cars are becoming more autonomous in stages and with varying degrees, which is where Mobileye has an advantage. Beginning with cruise control invented decades ago, to today’s cars that can parallel park themselves or apply the brakes when approaching an obstacle, it is unlikely cars will become completely driverless overnight. Mobileye’s products are being used for semi-autonomous applications already and they are much cheaper than the $100,000 components found in Google’s driverless car.
Two Great Tech Growth Names But With Different Risk Profiles
Market routs are never fun, especially one like we saw on Monday the 24th. But they do provide investors with valuable information, namely, which companies do investors have so much conviction in they won’t be selling them along with everything else?
Both Skyworks and Mobileye are great tech growth names, and both play on big tech trends that will be driving these stocks for the next few years or more. Skyworks gives investors a larger company with a broader portfolio of products, growth at a reasonable price, and even a dividend. Mobileye is a bit riskier as a smaller pure-play but has exciting prospects. In either case, both of these names deserve a spot on your watch list.
