A Stock Under $5 Which You Shouldn’t Miss
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s a pity I didn’t make an Outperform CAPS call on chipmaker RF Micro Devices (NASDAQ: RFMD) almost four months back even though I was quite sure that the company was headed higher. Since my last post on RF Micro, it has gained an impressive 20% in just under 4 months and looks set to get even better.
Gone are the days when RF Micro was suffering due to faltering fortunes of its customers. I had seen RF Micro’s impending success coming for a long time and it finally brought good news to investors last month. The company thumped analyst estimates handsomely and it parked its outlook for the current quarter way ahead of what the Street was expecting, and this sent the stock soaring.
If you haven’t booked your seat on the RF Micro Devices juggernaut yet, let me tell you that the company has a lot of room to run still and could probably make for a good long-term investment. Let’s go through the various catalysts one by one.
Counting on Old Friends
Research in Motion (NASDAQ: BBRY) and Nokia used to be the primary revenue drivers for RF Micro at one point of time. Their well-documented declines also led to a fall in business for RF Micro Devices. But, both Nokia and RIM are trying to reinvent themselves and this bodes well for RF Micro.
RIM has been on a tremendous rally over the last one week and there’s a lot of positivity around its upcoming BB10 phones which are just weeks away from launch. For instance, Goldman Sachs has upgraded the stock to a “Buy” as they believe that BB10 has a 30% chance of success. Hence, good news for BB10 should translate into good news for RF Micro as well, as this would mean more business.
Two Illustrious Clients to Drive Revenue
If you were not convinced about the above two customers, the following two should certainly cement RF Micro’s prospects in your eyes. In my previous post on RF Micro, I had said that there was a possibility that the company would be featured in Apple’s (NASDAQ: AAPL) next iPhone and that turned out to be a reality.
The company supplied two switches for the iPhone 5 and this is undoubtedly a huge catalyst. Apple’s latest iPhone has been selling at a great pace, which helped the Cupertino-based company knock off Android from its perch in the U.S. Although word on the Street tells us that RF Micro had only 60 cents of content inside the iPhone 5, it should be noted that this is thrice what it had in the iPhone 4S. Hence, a growing relationship with Apple is certainly a big positive.
And then, there’s Apple’s arch-enemy Samsung. RF Micro is probably working on a number of Samsung devices and this could be another reason behind its sunny outlook for the current quarter. It might be possible that RF Micro would be supplying its chips for the rumored Samsung Galaxy S IV (just a thought). Thus, the company’s presence inside the flagships of both the smartphone behemoths would result in strong streams of revenue.
Opportunity in China
But wait! There are some more opportunities for RF Micro in one of the world’s biggest mobile markets, China. The Chinese cellular market is a major contributor to RF Micro’s top line, and it was one of the reasons why the company had to endure a difficult fourth-quarter last fiscal year. And the Chinese market is one of the reasons why RF Micro is set for growth ahead.
More and more Chinese customers are moving to smartphones and the carriers are upgrading to newer technology. RF Micro has seen a jump in sales of its 3G components for the Chinese market and has also recorded design wins. The company is witnessing increased demand across the board for its products, be it 3G/4G cellular components, Wi-Fi modules or cable TVs. Moreover, presence in flagships of Apple and Samsung, along with other smartphone makers such as HTC, RIM and Nokia will enable it to ride smartphone growth in the Middle Kingdom.
The Takeaway
RF Micro is currently enjoying its time under the sun, and it is well-deserved. The company has turned around its fortunes remarkably. Through its cutting-edge technology, RF Micro Devices has acquired new and important customers while maintaining the old ones who are trying to stage a turnaround. It is also playing an important role in the Chinese smartphone market, which is on course to become the biggest in the world this year.
Considering all the factors above, it would be more or less safe to say that RF Micro Devices is one of the best stocks that you might buy under $5, and this time I wouldn’t miss out on making an Outperform CAPS call on it.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!
