The iPhone 7 is a hot item, but it’s the upcoming iPhone 8 that has some investors salivating.
The iPhone 7 is a hot new item, but followers of Apple expect the company’s next “supercycle” to take just a year, with the iPhone 8 coming out next fall with some radical new features.
Sandy Villere, co-manager of the Villere Balanced Fund VILLX, -0.14% believes investors are looking at an excellent opportunity to scoop up shares of Skyworks Solutions Inc. SWKS, +0.33% because the stock has nose-dived, as revenue at Apple Inc. AAPL, +0.10% has declined.
Skyworks derives about 40% of its revenue from Foxconn Technology, which purchases components from Skyworks for use when assembling iPhones for Apple, according to comments made by Skyworks CFO Kris Sennesael during a conference call with analysts on Nov. 3.
Here’s a two-year chart for the stock, through Nov. 10, showing just how volatile it has been, and its huge decline since July 2015:
Apple’s sales for its fourth fiscal quarter ended Sept. 24 were down 9% from a year earlier, while Skyworks reported a 5.2% decline in its third-quarter sales. The recent trend obviously hasn’t been good for either company, and it remains to be seen how much of a sales bump Apple will get from the iPhone 7, which was rolled out in September.
But Villere still pins his hopes for Skyworks on Apple. “The revenue Skyworks is getting on each phone is increasing. As time goes on, your iPhone is going to do more and more and more,” he said in an interview. He also said he expected a massive bump for iPhone sales after the iPhone 8 supercycle begins, hopefully in 2017.
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Skyworks also supplies manufacturers who make Android smartphones. “It is a play on phones in general becoming better all the time,” Villere said.
Villere & Co.
The Villere Balanced Fund is “unique,” according to Villere, because it typically holds only about 30 stocks, with at least 25% of the fund invested in bonds, to provide growth and income, with some downside protection. According to Morningstar, funds in the same category, with stock allocation of 50-70% equity, hold 391 securities on average.
Villere said he and his colleagues select stocks of “dominant companies that trade at reasonable prices, “usually with a theme.” He likes some bank stocks, because of the expected end of the low-interest-rate cycle. He also thinks “technology stocks will be leaders.”
Two more stock picks
Villere likes First Hawaiian Inc FHB, +0.78% the holding company for First Hawaiian Bank, which was partially spun off by BNP Paribas SA BNPQY, -0.79% in July. First Hawaiian’s stock trades for 18.4 times the consensus 2017 earnings estimate, among analysts polled by FactSet, and for 1.6 times book value. While those valuations don’t look particularly low, Villiere said the stock is “trading at a discount... since BNP still owns 83% of the bank. Everyone is assuming BNP will continue to sell. So nobody wants to step in now.”
In January, after a required six-month waiting period following the initial offering, there can be plenty of pressure on the shares if BNP begins selling heavily. Villere expects major investors will “want to wait until they can get a bigger piece, or wait until selling pressure is out of the way.”
Another stock Villere mentioned as being attractive but “off the beaten path,” is Financial Engines Inc. FNGN, -2.19% which is a large registered investment adviser that helps large 401(k) providers select mutual funds. The company’s larger customers include Ford Motor Co. F, -0.93% Comcast Corp. CMCSA, -0.22%Northrop Gumman Corp. NOC, +0.33% and Raytheon Co. RTN, +0.75%
Here are the top 10 equity holdings of the Villere Balanced Fund, as of Sept. 30:
| Company | Ticker | Industry | % of portfolio | Total return - past 12 months |
| Taser International Inc. | TASR, -0.61% | Aerospace and Defense | 7.8% | 43% |
| Financial Engines Inc. | FNGN, -2.19% | Investment Managers | 4.9% | -9% |
| 3D Systems Corp. | DDD, +1.21% | Electronic Equipment/ Instruments | 4.7% | 46% |
| Howard Hughes Corp. | HHC, -0.43% | Real Estate Development | 4.6% | -17% |
| Kearny Financial Corp. | KRNY, +0.33% | Savings Banks | 4.2% | 19% |
| Skyworks Solutions Inc. | SWKS, +0.33% | Semiconductors | 3.8% | -4% |
| LKQ Corp. | LKQ, -1.29% | Automotive Aftermarket | 3.8% | 5% |
| Visa Inc. Class A | V, -0.31% | Financial Services | 3.5% | 4% |
| B/E Aerospace Inc. | BEAV, -0.37% | Aerospace and Defense | 3.5% | 29% |
| Steris PLC | STE, -0.29% | Medical Specialties | 3.4% | -10% |
| Sources: Morningstar, FactSet | ||||
This table shows 12-month sales-per-share growth rates for the fund’s top ten holdings:
| Company | Ticker | Sales per share - past 12 reported months, through Nov. 10 | Sales per share - year earlier | Growth of sales per share |
| Taser International Inc. | TASR, -0.61% | $4.50 | $3.46 | 30% |
| Financial Engines Inc. | FNGN, -2.19% | $6.52 | $5.74 | 14% |
| 3D Systems Corp. | DDD, +1.21% | $5.77 | $6.15 | -6% |
| Howard Hughes Corp. | HHC, -0.43% | $23.02 | $18.33 | 26% |
| Kearny Financial Corp. | KRNY, +0.33% | $1.59 | $1.31 | 21% |
| Skyworks Solutions Inc. | SWKS, +0.33% | $17.12 | $16.72 | 2% |
| LKQ Corp. | LKQ, -1.29% | $27.54 | $23.21 | 19% |
| Visa Inc. Class A | V, -0.31% | $6.24 | $5.65 | 10% |
| B/E Aerospace Inc. | BEAV, -0.37% | $28.21 | $25.86 | 9% |
| Steris PLC | STE, -0.29% | $30.82 | $31.61 | -3% |
| Sources: Morningstar, FactSet | ||||
That’s a rather impressive set of sales-growth numbers. We are showing sales per share growth, rather than revenue growth, because the per-share numbers reflect any dilution from issuance of additional shares, as well as declines in share counts from buybacks.
Here’s a quick summary of sell-side analysts’ ratings and price targets for the group, along with First Hawaiian Inc., which is not among the fund’s top 10, but was among the individual stocks Villere mentioned:
| Company | % ’buy’ ratings | % neutral ratings | % ‘sell’ ratings | Closing price - Nov. 10 | Consensus price target | Implied 12-month upside |
| Taser International Inc. | 78% | 22% | 0% | $26.82 | $32.14 | 20% |
| Financial Engines Inc. | 83% | 17% | 0% | $30.90 | $35.50 | 15% |
| 3D Systems Corp. | 15% | 60% | 25% | $14.06 | $14.69 | 4% |
| Howard Hughes Corp. | 100% | 0% | 0% | $106.38 | $172.75 | 62% |
| Kearny Financial Corp. | 67% | 33% | 0% | $14.55 | $14.67 | 1% |
| Skyworks Solutions Inc. | 68% | 24% | 0% | $75.91 | $85.04 | 12% |
| LKQ Corp. | 93% | 7% | 0% | $31.87 | $38.64 | 21% |
| Visa Inc. Class A | 77% | 23% | 0% | $81.87 | $93.52 | 14% |
| B/E Aerospace Inc. | 0% | 100% | 0% | $58.77 | $59.44 | 1% |
| Steris PLC | 86% | 14% | 0% | $65.97 | $86.00 | 30% |
| First Hawaiian Inc. | 36% | 64% | 0% | $28.93 | $28.40 | -2% |
| Sources: Morningstar, FactSet | ||||||
Fund performance
A balanced fund cannot be expected to match the performance of a broad equity index during a bull market, since its income component makes it more conservative by nature.
Here’s now the Villere Balanced Fund’s performance stacks up against its Morningstar category and the S&P 500 index, through Nov. 10:
| Total return - 2016 | Avg. total return - 3 years | Avg. total return - 5 years | Avg. total return - 10 years | Avg. total return - 15 years | |
| Villere Balanced Fund | 8.8% | 0.2% | 7.8% | 6.4% | 7.3% |
| Morningstar Moderate Target Risk aggregate | 6.7% | 4.1% | 7.2% | 5.3% | 6.6% |
| S&P 500 | 8.1% | 9.3% | 14.3% | 6.9% | 6.6% |
| Sources: Morningstar, FactSet | |||||
Passively managed index funds have had a strong tendency to outperform actively managed funds during the continuing seven-year bull market. But here we see the Villere Balanced Fund beating the S&P 500 this year, and also for 15 years.
By Philip Van Doorn
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