You'll often hear about "derivative" trades or alternative
ways that traders are taking advantage of a hot sector or new
technology without investing directly in the business itself,
which might be overbought or played out.
Investors will sometimes look to related companies that have
yet to be recognized by the masses or have not yet fully profited
from a breakthrough technology.
When the internet was gaining popularity in the 1990s,
hundreds of companies were riding the wave of this new shift in
the way we interacted. The internet was not just a new cool
technology, it changed the way we lived and it had (has) the
ability to act as an extremely powerful catalyst for all sorts of
There were some internet derivative trades that worked
But today's bear of the day isn't am unrecognized company that
is on the cutting edge of technology or on the precipice of
meteoric growth; it's a seasoned 'old tech' company that is
hanging on to another mature tech giant to generate the majority
of its income.
The ties that bind
generates a great deal of their total revenue from one client,
Apple (almost 90% according to several sources). The
company supplies Apple with audio chips for their mobile
While it seems like a good deal to be in bed with one of the
best and brightest companies out there, the relationship has its
strains and Apple can not only have what it wants from Cirrus,
but at just about any reasonable price.
With Apple's brand strength waning and companies likeSamsung
nipping at their heels, Apple not only needs to fight for market
share, but keep costs down as the average selling price for
Smartphones has been on the decline.
Cirrus's margins have been suffering as of late and their
shares have tumbled from over $45 just 10 months ago to their
current value just above $18. The company recently warned
that lower product sales forecasts from an "unnamed" customer are
going to hurt their future earnings.
Not a good sign…
Cirrus is making some strides in broadening their customer base
and product mix, but they have to watch their cash and their
limited resources in addition to keeping their biggest client
As a Zacks Rank #5 (strong sell), they haven't been pleasing
analysts or shareholders. While the P/E multiple seems
attractive at 10.15 times forward earnings, one has to wonder
just how bad earnings can get.
Analysts have been slashing their forecasts and the stock
currently has a negative 23% ESP for the coming quarter's
earnings. This negative ESP, combined with the Zacks Rank
of 5 makes for a high probability of a miss.
I think there is a future for Cirrus, but unless Apple's new
iPhone wows crowds and blows the ever increasing competition
away, Apple and Cirrus along with it may have a long road to
If you are looking for a chip maker or want to play on the
smartphone revolutoion, checkoutOmnivision Technologies Inc.
- Zack Rank #1 or evenQualcomm
with a Zacks Rank of 3.
Jared A Levy is one of the most highly sought after traders in
the world and a former member of three major stock exchanges.
That is why you will frequently see him appear on Fox Business,
CNBC and Bloomberg providing his timely insights to other
investors. He has written and published two tomes,
"Your Options Handbook"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
- Learn to buy stocks likely to have robust earnings BEFORE they
- Technical Analysis + Zacks Rank. Best of both worlds approach
to find timely trades.
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APPLE INC (AAPL): Free Stock Analysis Report
CIRRUS LOGIC (CRUS): Free Stock Analysis
OMNIVISION TECH (OVTI): Free Stock Analysis
QUALCOMM INC (QCOM): Free Stock Analysis
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