Sell-offs
like the one we had last week should be a welcome sign to investors, not a
reason to worry and panic. Days
like Thursday should be used to begin buying positions that you want or add to
positions that you already own.
Much like myself, you should have a list of stocks that you want in your
portfolio and are willing to buy if you see it lower because of a broader
market sell-off. Among the many on
that list should be chipmaker NXP Semiconductors (NXPI). The company designs, manufactures and
supplies mixed-signal and standard product solutions. The reason I like this chipmaker so much is because they are
a big player in mobile, identification and automotive high-performance
mixed-signals. NXPI’s technology
can be found in devices made by Google, Microsoft and most recently Apple. They are benefitting from the rapidly
growing near-field communication (NFC) business that is now more popular than
ever due to Apple’s new Apple Pay.
NFC technology allows your devices to connect to one another through
radio communications…think Bluetooth.
During the Apple iPhone 6 teardown, multiple NXPI chips were found, so NXPI
is only going to benefit from the red hot Apple phone. Early last week, an analyst report from
ABI Research found that NXPI had a 50% market share in shipped units in 2013,
up from 32% in 2012. They had an
18% lead in market share and that lead is only going to continue with Apple’s
contactless pay.
While
I still see a lot of growth in contactless pay and further revenue growth for
NXPI, the market that they will really benefit from is the rapidly growing automotive
segment. In July, NXPI reported
automotive revenues of $288M, up 14% YoY, helped most by keyless entry and
in-vehicle networking solutions.
Most recently, they announced that they received an award for a newly
designed chip for car-to-car communications that while it likely won’t be in
cars until late 2016, should offer great growth for the foreseeable
future. What’s important about the
award is that it was received not only for strong communications capabilities
but for strong security as well.
If there is ever a question about whether driverless cars or car-to-car
connectivity is going to be future, just look at how well MobileEye (MBLY) is
trading. Also look at how Google
and every other automaker in the world are working on a driverless car.
Although
at first glance it looks like NXPI is rather expensive, trading at 35x this
year’s earnings, it’s actually very cheap at current levels. Based on expected 2015 earnings, NXPI
is trading at just 13x, cheaper than larger chipmakers, Intel and
Qualcomm. Another key metric to
look at is price-to-earnings growth ratio, which measures how quickly the stock
is moving relative to earnings growth.
Typically, you want a PEG ratio below 1, and NXPI has a PEG ratio of
0.66, which is incredibly strong. NXPI
is reporting record revenues and cash levels and I believe that is very likely
to continue.
On
Friday, NXPI closed at $71.09, just 3.7% from all-time highs made a couple
weeks ago. On August 29th,
the stock gapped up to $67.81 and hasn’t looked back since. I would not recommend this stock as a
trade, but I do recommend it for a long-term investment given how successful I
believe the car-to-car communications market will be in the future. I would recommend buying the stock this
week, and if you get another market sell-off, add more on the way down, closer
to $67.00. The first level of
support to look at is $67, which is the high made on August 28th
(the day prior to the stock gapping up) and is also right around where the
50-day moving average is. The
50-day has been strong support for the stock over the last 52-weeks and should
continue to be support. With that
said, again, I would recommend buying 50% of your position this week and then
the next 50% around $67, and then let it ride to profits.
Over
the last couple weeks, I made a couple changes to my own portfolio, selling
Michael Kors (KORS) and adding Twitter.
KORS has become an absolute disaster, especially after announcing a new
secondary stock offering, which is what made me exit the position. Adding Twitter was a move I wanted to
make for a while because of new management structure and my belief that they
are still growing in user base and are better able to monetize mobile.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA),
Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL)
Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM),
ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto
Networks (PANW), and Twitter (TWTR).
Jeff Lewison
No comments:
Post a Comment