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%
