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Successful stock market investing over the long term takes skills in several disciplines. First, you need to be able to think outside of the box by looking behind the headline stocks into lesser-known names operating behind the scenes.
Now, I am certainly not saying to avoid the headline names. Getting in early on a favorite stock is a sure way to stock market profits. But often, once a stock starts making mainstream news headlines it’s upward price momentum is about to slow or fail altogether.
Identifying companies that support one or a combination of headline names yet do not get the same attention as the headliner is a consistent way to locate winning stocks for the long term.
Once you locate your behind-the-news stock, it’s time to take a close look at its fundamentals to make certain there is support behind the price move. Are the fundamentals improving over time? Are revenue and sales upward-trending from quarter to quarter? Do the products and services support an overall societal or economic trend? These are the basic questions to answer before making an investing decision.
Next, make certain the share price is in an overall upward trend. This means judging whether the shares higher over the last year and by how much they are up relative to the headline name.
Ideally, the stock should be outpacing the headliner price-performance wise and consistently making new highs on the daily price chart.
I like stocks that are trading at or near their highs for one of my favorite investing tactics, trend following.
I define trend following as buying stocks as they make new highs, then riding the upward trend and protecting profits via trailing stops. Certainly, there are many permutations of this basic method, such as waiting for a short term pullback to enter long, but for the purpose of this article, buying breakouts to new highs will suffice.
The ideal trend-following stock is Skyworks Solutions (Nasdaq: SWKS). This stock holds the key to the future of the Internet of Things. It has soared over 42% in the last 52 weeks, and the company just keeps outperforming. With both strong fundamentals and robust technicals, if there ever was a stock made to order for the trend-following investing method, this is the one.
I found this company by first noticing that that Apple (Nasdaq: AAPL) shares had posted over 35% gains in the last 52 weeks, despite the apparent slowdown in iPhone sales. This observation led me to look behind the headlines to see what companies Apple depends on as suppliers.
Skyworks jumped out immediately, as it obtains approximately 40% of its revenue from Apple, and is also a supplier to Apple’s Chinese smartphone competitors such as Huawei. The fact that shares of Skyworks had skyrocketed around 42% over the last year truly piqued my interest.
Skyworks specializes in connecting devices and technology, and experts are predicting there will be 70 billion internet connected devices by 2020. Called the Internet of Things, this burgeoning new web structure is expected to grow exponentially into the near future.
Skyworks Solutions, Inc. officially describes itself as an analog semiconductor company powering the wireless networking revolution. Its innovative products are connecting people, places and things. These objects span some new and previously unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets.
The company posted strong results for its first fiscal quarter, with revenue for the first fiscal quarter at $914.3 million, up 9.4 percent sequentially and exceeding consensus estimates of $902.7 million.
Operating income for the first fiscal quarter of 2017 was $321.9 million with diluted earnings per share of $1.38. Cash flow from operations for the quarter was also a record $495.9 million.
“Skyworks delivered exceptional financial results in the first fiscal quarter of 2017 fueled by global demand for ubiquitous mobile connectivity and the Internet of Things,” said Liam K. Griffin, president and chief executive officer of Skyworks. “We are enabling the next phase of the wireless revolution, powering new and previously unimagined applications… Skyworks is uniquely positioned to capitalize on this connectivity megatrend.”
The company also positively guided that it will beat consensus revenue and non-GAAP EPS estimates in its fiscal second quarter.
Even better, the company just launched a $500 million stock buyback program that should further accelerate the upward price trend.
Risks To Consider: Whenever one is investing in high tech, there is always a competitive risk. New companies with innovative products cause disruption in the high-tech sector on a consistent basis. The disruption can dethrone leading firms and cause havoc to share prices.
Action To Take: Following the trend following theme, enter long on an upside break of $93.00 per share with an upside target of $135.00 per share. Initial stops are suggested at $83.00 per share.