iPhone 6 Supplier Could Post 25% Gains As It Breaks Out To New Highs

This is a stock you wouldn’t have wanted to own when the tech bubble burst in early 2000. In that era, it plummeted more than 95% from a February 2000 peak near $73 to a July 2002 all-time low near $3.40.

For many years, the shares struggled to right themselves technically, repeatedly hitting resistance just above $10 and backing off. In fact, it wasn’t until late 2009 that this resistance was decisively penetrated.

Now, however, shares of the specialized chipmaker Skyworks (NASDAQ: SWKS) have recently broken a major multi-year downtrend line and look very attractive technically. Backed by robust revenue and earnings growth estimates, based on strong product demand, Skyworks looks set to move ahead, making now a potentially profitable time to trade the stock.

#-ad_banner-#News that Skyworks will be supplying RF (radio frequency) chips for Apple’s (NASDAQ: AAPL) upcoming iPhone 6 is a strong growth catalyst.

Analysts expect at least 100 million iPhones will be sold during the third and fourth quarters of 2014, meaning Skyworks will likely be selling millions of its of RF chips — just to Apple. As a result, Skyworks management anticipates upcoming fourth-quarter revenue will increase 42% year-over-year.

In addition to supplying chips to Apple, Skyworks sees many opportunities in the wireless connectivity, data content and internet-enabled smart device markets. The company is currently developing advanced technology to support fast, secure downloads for streaming media and cloud-based services.

Management believes its wide range of semiconductor products, from LEDs to power convertors, will be used in increasingly popular tech devices like wearable electronics and fitness trackers.
Shareholders certainly seem optimistic about Skyworks’ growth outlook.

The stock is on a major uptrend, trading near a fresh 52-week high. Shares have not showed this much strength since the early months of the year 2000.

Shell-shocked shareholders took 10 years to regain confidence in the stock. Between 2002 to 2009, shares were unable to push much beyond the $10 range.

Finally, in 2010 the stock moved above this resistance, reaching $36 in February 2011. Here it was capped by another form of resistance, the intersection of the major downtrend line from the February 2000 peak, which capped shares just above $30 and led to another sharp retreat to the mid-teens.

As shown on the chart, SWKS then recovered, and from October 2012 to October 2013, the stock traded in a tight range between $19 support and $26 resistance. This trading activity formed a rectangle.

In November 2013, shares pushed above $26, bullishly breaking the rectangle. At the same time, a major technical event occurred — the bullish break of the multi-year major downtrend line.
Since breaking this long-term downtrend line, the stock has moved strongly, forming a major uptrend line, characterized by steadily rising peaks.

In June 2014, shares hit a high around $54, but soon ran into some resistance. However, by August, the stock moved higher, challenging a small shelf of resistance around $58.
For much of the summer of this year, shares traded in a tight range between $54 support $58 resistance.

However, the stock is now flirting with breaking above the resistance at $58. If shares can definitively move past this peak, they easily retest the historical February 2000 $72.59 peak.
At current levels, the $72.59 price target presents traders with 26.2% potential returns.

The bullish technical outlook is supported by strong 

With Apple using Skyworks’ RF chips in the iPhone 6, Skyworks’ management expects fourth-quarter revenue to expand 42% from the year-earlier period to $680 million.

For the full 2014 year, analysts project increased product demand will push revenue 26.3% higher to $2.3 billion from $1.8 billion last year.

The earnings outlook is similarly strong.

With strong sales of Skyworks’ chips, analysts expect fourth-quarter earnings to surge 58% to $1.01 per share from $0.64 per share in the comparable year-earlier period.

For the full 2014 year, analysts expect strong chip sales, going into a wide array of electronic products, will push earnings 42% higher to $3.13 per share from $2.20 per share last year.

Risks to consider: A major reason for Skyworks’ bullish outlook is projected chip demand, based on expected iPhone 6 sales. However, if iPhone sales were to be weaker than expected, Apple would order fewer of Skyworks’ chips, negatively impacting the chip company’s profitability. However, Skyworks is diversified and well positioned to capitalize on growth in many other expanding semiconductor segments.

Recommended Trade Setup:

— Buy SWKS at the market price
— Set stop-loss at $54.36, just below important support
— Set price target at $72.59 for a potential 26% gain by mid-2015

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