The most epic and motivational U.S. corporate success story may
have just ended. Not only is
Apple's (Nasdaq: AAPL)
share price in the process of being decimated, its fall from grace
is likely to adversely affect its major suppliers.
But as you'll see later in this article, one of Apple's major
suppliers has been able to dodge thebullet .
Before I get to thestock , here's why Apple's demise has opened
this incredible buying opportunity...
After launching successful product after successful product the
world embraced, the stock shot from under $100 at the start of 2009
to $700 in August 2012.
Take a closer look…
Now, the rug under investors has been pulled out.
The stock has plunged all the way down to the current mid $400s.
In fact, with a $413.89 billionmarket cap, the company has just
lost its title as the world's most valuable company to No. 2 ,
giving the title back to oil giant
, which boasts amarket cap of $416.50 billion.
And it's not justWall Street that's punishing this high
flyer.Main Street has jumped on the bandwagon, too. In 2011, for
example, the company was in the top 10
most liked U.S. brands list
, according to marketing research firm YouGov BrandIndex. The most
recent survey indicates Apple has fallen to No. 11 on the
The fall from grace
Apple's fall from grace is certainly not because of the
fundamentals. During the first 2012 fiscal quarter (ended Dec. 31,
2011), Apple posted recordrevenue andearnings . Revenue for the
period totaled $46.33 billion a 73% increase from the year-ago
quarter. Year-over-year earnings of $13.06 billion were more than
double the $6 billion posted before. The company sold about 37
million iPhones in the quarter, a whopping 128% growth from the
year-ago period, and some 15 million iPads, another incredible
increase of 111%year over year .
So why is the stock still being punished? Because of investor
Stocks always surge higher on hype, but when reality hits, they
get knocked back down to Earth. In the case of Apple, reality
couldn't live up to the hype. And now investors are finally
realizing it's impossible for the company to maintain its growth
rate. I called for Apple's imminent demise
in this October 2012 article
and it looks like the projections have come true.
But what many investors aren't seeing is that as Apple's
suppliers get hit by the stock's plunge, some rare buying
opportunities are opening up, particularly for
Cirrus Logic (Nasdaq: CRUS)
Having 60% of its business deriving from Apple, this iPhone chip
manufacturer has definitely felt some damage from the stock's
You can see from the chart that Apple and Cirrus Logic prices
have tracked each other rather closely for the past three years,
until just recently, where there has been a disconnect.
Cirrus reported earnings a day after Apple and knocked them out
of the park. Fiscal 2013 third-quarter revenue of more than $310
million was a record for the company and up 153% year over year.
Earnings surged to $1.64 per share, more than 100% higher than the
same time in the previous year, and beat theconsensus estimate of
$1.41 per share. The company's price-to-earnings (P/E ) ratio is 8
and it boasts an incrediblePEG ratio of 31, revealing growth
potential in the stock.
Guidance for the fourth fiscal quarter are lower, however,
mainly due to Apple slashing orders. The company expects revenue to
come in between $200 and $220 million, well below the $235
But I'm not worried about it.
Clearly, Cirrus doesn't have the over-inflated hype premium
baked into Apple's stock and the solid numbers speak for
themselves. Besides, Apple's products still sell like gangbusters,
and Cirrus is diversifying its business into LED-lighting and audio
applications such as amplifiers and video cameras. It has recently
started to provide components to a top Chinese phone manufacturer,
so it's slowly cutting the cord from Apple's dependency.
Risks to Consider:
If Apple continues lower, then it could adversely affect
Cirrus. Change is the nature of the technology sector, so it's only
a matter of time until it happens. Always use stops and position
size properly wheninvesting .
Action to Take -->
Because of its solidbalance sheet andprice action , and despite
Apple's weak streak, I think Cirrus is a compelling tech stock with
a great buying opportunity now. The company has started to break
away from Apple as its sole client, so it has alot of room to grow
from here. I wouldn't be surprised to see it at $40 within the next
12 months. This means Investors who buy the stock now could easily
gain at least 40%.