The Time Seems Right to Buy This Beaten Down Apple Play

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If I was to ever make a list of unlucky stocks, TriQuint Semiconductor (NASDAQ: TQNT) would have certainly ranked amongst the unluckiest ones in my list. Despite being a longtime component supplier to none other than Apple (NASDAQ: AAPL), TriQuint’s stock price performance has been nothing but disappointing.

A Sorry Story

The company’s top line has grown at a decent rate over the past five years, but its stock price chart tells a different story. It seems as if the market has forgotten that TriQuint is a lucrative Apple play.

TQNT Revenue TTM data by YCharts

After peaking in early 2011, TriQuint’s shares have been in a free-fall mode. And so far this year, the company hasn’t brought much joy to investors either as it has just about managed to stay in the green zone with a shabby low-single digit return.

So Far This Year…

In the two quarters that TriQuint has reported so far this fiscal year, it has shown both its good and bad sides. In the first quarter, TriQuint’s shares took a pounding after it issued a gloomy forecast. The company guided well-below consensus estimates as Apple was busy clearing its iPhone 4S inventory and wasn’t making enough new phones, leading to low demand for TriQuint’s chips.

But, TriQuint had also said that it would put up a better performance in the latter half of the year, driven by strong seasonal demand for smartphones. Despite that, the market punished TriQuint while it didn’t do the same with Cirrus Logic (NASDAQ: CRUS), another Apple supplier.

Cirrus had also guided for a weak quarter that time, and like TriQuint, it had also guided for a better second half. One quarter later, Cirrus issued an outstanding guidance for the September quarter, expecting an 80% sequential jump in revenue, driven by its Apple contract. Hence, TriQuint investors should have taken a cue from Cirrus’ guidance and kept patient for the good times to begin.

TriQuint’s second-quarter report proved that everything isn’t negative about it, as it played a perfect game. It beat consensus estimates and guided at par with the Street’s expectations. Management stated that they expect a better financial performance in the second half of the year as more mobile devices hit the market. The company’s guidance did seem a bit conservative to me and I won’t be surprised to see TriQuint trump estimates as initial iPhone 5 sales have been quite strong.

What to Expect

And there is a solid reason why TriQuint should turn in an improved performance in the second half of the year, beginning next week when it is expected to release its third quarter results. Almost 40% of TriQuint’s revenue comes from Foxconn, which is nothing but a proxy for Apple. TriQuint has seen its share of the Apple pie grow over the years, from 20% of revenue in 2009 to 37% in the first quarter this fiscal year. And going forward, I expect TriQuint to reap the benefits of the iPhone 5.

Analysts at Barclays expect TriQuint to make $1.40 for every unit of the iPhone 5 sold. Hence, TriQuint can expect to make a boatload of money with help from Apple. However, some might raise questions at the success of the iPhone 5 after it “disappointed” analysts with initial sales. But it shouldn’t be forgotten that the iPhone 5 has a lot of room to run and should eventually turn out to be a more successful product than its predecessor (going by initial numbers).

Apple is still trying hard to satisfy demand for the latest iPhone and this signifies better times ahead for TriQuint. Much has been made out of the Maps glitch, the Lightning connector or scratches on the aluminum, but consumer demand for the iPhone 5 still remains strong. Hence, I won’t count much on the negativity around the iPhone and doom TriQuint’s prospects as well.

But wait, there is one more catalyst that can drive TriQuint higher. The company has had a long relationship with Apple, featuring inside its iPhones and iPads, and so it won’t come as a surprise if it supplies its Wi-Fi chips for the iPad Mini as well.

Should You Buy Now?

Going by the stock’s historical performance, one can easily decide against buying TriQuint. If you take a look at how it’s valued, a trailing price-to-earnings (P/E) multiple of almost 115 will again put you off. But, analysts expect a remarkable improvement in earnings in the future, as a forward P/E multiple of 18.96 suggests. But there’s more to TriQuint than just numbers in the form of Apple’s devices.

TriQuint has been unlucky so far but it has got some nice catalysts ahead of it. Its presence across iDevices is a positive which can’t be ruled out. Like other Apple component suppliers, TriQuint also expects to put up a decent performance as we enter the last lap of the year as the holiday quarter approaches. A couple of solid quarterly results in the future should give investors more confidence in the stock, and I am counting on iDevices to help TriQuint do so. 

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TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Cirrus Logic, and TriQuint Semiconductor. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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