Part 5

Skyworks Solutions (SWKS)

Company Background

Skyworks Solutions aims to empower the wireless networking revolution, connecting people, places and things around the world. As the demand for ubiquitous, “always-on” connectivity increasingly expands, the company’s innovative, high performance analog semiconductors are enabling breakthrough communication platforms from global industry leaders – changing the way we live, work, play and learn. Through their broad technology expertise as well as one of the most extensive product portfolios in the industry, Skyworks Solutions is Connecting Everyone and Everything, All the Time. The company has built its product offering around two key markets in the 5G and IoT space — cellular handsets and analog semiconductors.

The company formed as a result of a merger of Alpha Industries and the wireless communications division of Conexant, which took effect on June 26, 2002 and is currently headquartered in Irvine, California. The company’s products include power amplifiers (PAs), front-end modules (FEMs), radio frequency (RF) sub-systems, and cellular systems. In addition to its core analog technologies, the company also offers a diverse portfolio of linear integrated circuits (ICs) that support automotive, broadband, cellular infrastructure, industrial and medical applications.

Additionally, Skyworks Solutions is one of the most active companies on the sustainable energy and climate change front as it really focuses on optimizing its business processes in a way to minimize its environmental footprint and cultivate safe and productive workplaces. Most of the company policies and programs drive improvements affecting the environment, health and safety, ethics and labor practices. This gives the company a very high ESG score, and makes it a very attractive investment from a fundamental standpoint.

Current Position – Financial Performance & Future Growth prospects

There has been a massive acceleration of 5G deployment throughout the last 12 months as well as an overall increase in the global demand for the latest generation of Wi-Fi 6 network solutions, which Skyworks is well-positioned to capitalize on. The company’s product portfolio in the cellular handset market, called Sky5 is preparing multiple 5G smartphone launches and its offerings were selected by Samsung, VIVO, and Xiaomi and other Tier-1 players. In addition to that, the improving iPhone 12 also brings a favorable growth trajectory for the company. Last but not least, Skyworks’ diversified portfolio positions the company well to capitalize on the solid momentum observed across fast-growing sectors like telemedicine, remote work, online learning, and video streaming.

The other major market for Skyworks is the IoT, where the company has managed to build itself as one of the leaders in the space due to the rising global demand for high-performance analog solutions.

One of the latest and IoT-related company news were that Skyworks Solutions rolled out embedded connectivity modules to enable Fibocom to manage its enterprise IoT architectures. The company has continued to invest heavily in R&D, which is expected to bring more business and new clients going forward, which in turn will further boost its IoT portfolio.

Furthermore, the International Data Corporation (IDC) expects 55.7 billion connected devices worldwide by 2025, 75% of which are anticipated to be connected to an IoT platform. We believe that this creates a very positive and growth-oriented macro framework for this segment of the business. As a result, we expect Skyworks to continue to deliver solid operating results in its future earnings reports.

The company also partnered with MediaTek for evolving 5G reference designs with focus on automotive and other IoT applications.

From a financial standpoint, Skyworks Solutions reported first-quarter fiscal 2021 non-GAAP earnings of $3.36 per share, which beat the street’s estimates of $2.05 by 61% and surged 100% year over year.

Revenues of $1.51 billion surpassed the street’s estimates of $1.06 billion by 41%. Further, the top line improved 69% on a year-over-year basis.

As of Jan 1, 2021, cash & cash equivalents and marketable securities were $1.019 billion, up from $980 million as of Oct 2, 2020. Cash generated by operating activities was $485.1 million compared with $267 million in the prior quarter. Capital expenditures were $118.6 million in the reported quarter compared with $146 million in the prior quarter. In the fiscal first quarter, Skyworks repurchased 1.4 million shares for a total of $196 million and paid out $83 million as dividends. The company also announced a new $2 billion stock repurchase program.

Skyworks announced quarterly dividend of 50 cents payable on Mar 9, 2021, to shareholders as on Feb 16, 2021.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months taking the price from the March 16th lows of 2020 around $67 to the $195 all-time highs in the middle of February, 2021. This represented an astonishing 191% gain for the stock in less than a year. However, the road to the above-mentioned all-time highs was not easy and was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few 10-15% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains one of the leaders in the semiconductor space. The way that Skyworks solutions has managed to evolve from a simple semiconductor manufacturer into an innovative and disruptive designer, manufacturer and seller of 5G and IoT solutions globally has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some 5G or IoT tech exposure to their portfolios.

We would wait for a bit of a profit-taking correction and start buying the stock at around the first support at $180. Should the price drop further, we would be interested in adding more to our long positions at the next key support at $170. Our initial profit-taking target is set at $225, followed by the next target at $245 where we would be fully cashing in our profits.

The stock is currently sitting at $188 per share, which is just 4.2% below its all-time highs of $195 per share. We saw that the stock found a lot of buying interest around the $160 level in the beginning of March as the confluence of both the horizontal and diagonal support lines at that mark brought a lot of buyers back to the market. Investors saw the opportunity to buy into one of the leaders in the 5G and IoT space at a 17% discount and didn’t think twice about it. The recent failure of the price to break below the $160 support back in March and the subsequent sharp price appreciation could be taken as a signal for the presence of a strong bullish interest. This in turn confirms that the long-term uptrend has resumed and that the current bullish run will most likely take the price to new all-time highs in the coming weeks. Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLK will be one of the best performing sector ETFs in April. We believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. We are strongly bullish on Skyworks Solutions in both the short and long term and believe that the most recent price corrections must be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give us a chance to maximize our profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLK and the Technology sector as a whole would continue to attract a lot of the investors’ attention moving forward, as technology is everything nowadays and the companies in this space are the ones shaping up our future. This makes us optimistic for the future performance of SWKS as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of Skyworks Solutions through its portfolio of products and services, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy the stock at a relatively small discount from the all-time high levels, we would like to point out that buying at these levels would be more suitable for risk-oriented investors and that our more risk-averse traders should wait for an additional 3-5% correction before jumping in. Thus, we are advising all of our followers to look at the $175-185 range for a potential long entry on the stock.

Lockheed Martin (LMT)

Company Background

Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 110,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. Lockheed Martin is one of the largest companies in the aerospace, military support, security, and technologies industry. It is the world’s largest defense contractor, based on revenue for fiscal year 2020. 71% of the company’s annual sales are to the U.S. government out of which 61% are to the U.S. Department of Defense. Lockheed Martin is also a contractor for the U.S. Department of Energy and the National Aeronautics and Space Administration (NASA).

The company’s main goal is to solve complex challenges, advance scientific discovery and deliver innovative solutions to help its customers keep people safe. Lockheed Martin operates in 375+ facilities and 16,000 active suppliers, including suppliers in every U.S. state and more than 1,000 suppliers in over 50 countries outside the U.S.

Current position – Financial Performance and Future Growth Prospects

By being the largest defense contractor in the world, Lockheed Martin enjoys a strong demand for its high-end military equipment in domestic and international markets, simply due to its brand recognition. Every government or multi-national corporation engaged somehow in the military sector wants to work with the biggest, most experienced and trustful defense contractor out there. We expect that there will be further expansionary U.S. budgetary provisions made in the coming months by the new administration, which will immensely boost LMT’s business.

Lockheed Martin’s operating units are organized into broad business areas.

1. Aeronautics, with approximately $23.7 billion in 2019 sales which includes tactical aircraft, airlift, and aeronautical research and development lines of business.

2. Missiles and Fire Control, with approximately $10.1 billion in 2019 sales that includes the Terminal High Altitude Area Defense System and PAC-3 Missiles as some of its high-profile programs.

3. Rotary and Mission Systems, with approximately $15.1 billion in 2019 sales, which includes Sikorsky military and commercial helicopters, naval systems, platform integration, and simulation and training lines of business.

4. Space, with approximately $10.9 billion in 2019 sales which includes space launch, commercial satellites, government satellites, and strategic missiles lines of business.

The Aeronautics business segment is indeed the largest one for the company and its F-35 program continues to be a key growth driver for the company having added 120 aircraft in 2020. The $1.29 billion contract for providing a consortium of services related to the F-35 jet program, was one of the notable deals that the company managed to secure throughout Q4 2020. However, we need to point out also that the possible forced cost reduction initiatives expected for the F-35 program might hamper LMT’s operating results.

Another honorable mention on the company’s list of new contracts is the $900 million contract for providing sustainment and support services for F-16 aircraft, including maintenance and modification activities. Additionally, its Sikorsky Aircraft unit secured a $507 million worth modification contract for UH-60M and HH-60M combat helicopters. Last but not least, the company’s total backlog of $147.1 billion during the fourth quarter reached a record level for the tenth consecutive quarter, registering growth of 2.2% from 2019-end level. Such consistent level of contract flows and subsequent backlog growth serves as a great confirmation that the company is moving in the right direction and that it has bright future ahead. The solid revenue growth prospects for the company should act as a tremendous boost of investors’ confidence in the stock.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 2 months taking the price from the $318 level back in February to the $380 highs in the beginning of April.

We would wait for a bit of a profit-taking correction and start buying the stock at around the first support at $370. Should the price drop further, we would be interested in adding more to our long positions at the next key support at $360. Our initial profit-taking target is set at $430, followed by the next target at $455 where we would be fully cashing in our profits.

This represented a tremendous 19.5% gain for the stock in just 2 months. This might not seem like an awful lot, but remember LMT is no a growth stock that moves tens of percents every month and hundred percents annually. From a relative standpoint the 19.5% return for a defense contractor like LMT that is also heavily cyclical is quite impressive. As we know, a cyclical stock’s price performance usually depends on the strength of the global economy as a weaker economic output should technically pressure the stock, whereas a strong economic growth should uplift the stock. In addition to that, it is worth to mention that it took LMT 8 months to drop from $385 down to $318. So, it took the stock 8 months to go down, but only 2 to fully recover all of the lost ground. Now, would you agree with us that while 19.5% return might not sound very appealing, when you put it in the right context it appears to be quite a remarkable gain.

However, the reason as to why the stock shot up towards the above-mentioned highs was mostly associated with the cyclical rotation from growth into value stocks that most investors began and tried to complete throughout Q1. It is important to note that even though that the movement looks kind of vertical on the lower time frames, it did run into some pretty strong dynamic resistance levels of the 50 DMA and 100 DMA lying at the $337 and $348 marks respectively. It was definitely not easy for the bulls to push above these lines of resistance and officially resume the uptrend. The price spent almost a month between the 50 DMA and the 100 DMA, trying to build enough bullish momentum in order to break higher. We saw the break above the 100 DMA, as a major signal that a meaningful structural shift is currently underway and that investors are seeing the industrial sector as a place where a lot of value is hidden in the market. Remember, from a psychological standpoint buying a stock that is currently sitting or approaching its all-time highs is not an easy task as your risk-reward ratio is rather unfavorable. The stock could be in a position to continue to go up, but it could also drop with 10-20% from the ATH and still keep its uptrend intact. At the same time, stocks sitting at their ATH levels are usually backed by strong momentum, positive sentiment, good business model, stable financial performance etc. which make these investments so attractive. In other words, an investor could find many reasons to buy the stock. However, you always need to remember that regardless of how good a company or a stock is, it could potentially become a terrible investment if you end up paying too much for it. In the case of LMT, the stock is still far from its $430 all-time high levels, but the recent sharp price appreciation could be running into some short term hurdles pretty soon.

The stock has been moving in an uptrend ever since the price bottomed on January 29th, 2021 and while there were some corrective movements that took place the uptrend has remained intact. The stock has continued to attract a lot of value investors’ attention as it remains one of the leaders in the military and defense sector. The unique position that Lockheed Martin has obtained in this relatively stable segment of the market has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some heavy cyclical and relatively stable exposure to their portfolios. The fact that the US Government is the company’s biggest client, speaks for itself and creates a very favorable image and business environment around Lockheed Martin.

To be updated.. at the end of the week

The stock is currently sitting at its all-time highs at $378 per share. We saw that the stock found a lot of buying interest around the $318 level in the beginning of February as the confluence of both the horizontal and diagonal support lines around that zone brought a lot of buyers back to the market. Investors saw the opportunity to buy into the leader in the Aerospace & Defense industry at an 18% discount and didn’t think twice about it. The recent failure of the price to break below the $318 support back in February and the subsequent sharp price appreciation could be taken as a signal for the presence of a strong bullish interest in the stock. This in turn confirms that the long-term uptrend has been resumed and that the current bullish run will most likely take the price to new all-time highs in the coming weeks. Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market.

We expect that the large infrastructure and military spending plan that President Biden has will be an outstanding catalyst for the future price appreciation of the stock. Most of the big industrial names as well as other market favorites have already started to price this large capital spending by the government into the Industrial sector, hence the reason why most of the large cap plays have already moved drastically to the upside. However, we believe that while some of these heavy cyclical and value plays, like LMT, might take a breather in the next 1-2 weeks, they will undoubtedly be moving higher in the coming months as we anticipate that the XLI will be one of the best performing sector ETFs in the future.

We also believe that the stock market in the US currently holds a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. We are strongly bullish on Lockheed Martin (LMT) in both the short and long term and believe that any price corrections must be treated as a great opportunity to buy this strong performing stock at a good discount, which would in turn give us a chance to maximize our profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have been steadily moving higher ever since they bottomed at the end of January. The RSI and Stochastic have already pushed into overbought territory on the daily chart, which is a great short-term indication for the presence of a strong bullish momentum, but it is also a rather bearish sign from a mid-term standpoint, as it indicates that the price will most likely overextend its up move, which in turn could bring back sellers and profit takers to put downward pressure on the price.

In addition to that, it is important to note the fact that the XLI and the XLK (Technology sector) would continue to attract a lot of the investors’ attention moving forward, as the constant rotation from growth into cyclicals will continue to be a major theme throughout 2021. This makes us optimistic for the future performance of LMT as a meaningful part of the XLI ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of LMT through its portfolio of products and services, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform its peers in the coming weeks and months.

Acknowledging the fact that we have never liked chasing stocks at their all-time highs regardless of how much we like the stock and the underlying business prospects, we would like to point out that starting a Long position at these levels would not be recommended, as it will come with an unfavorable risk-reward profile. We would advise our followers to wait for a minor pullback down towards the $369 zone before opening their BUY positions. Our profit targets will be placed at $430 and $455 respectively. Any larger corrections on the stock down towards the $358 levels should be treated as great buying opportunities.

Sincerely,

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