EOT Trade Alert – January 22, 2010

| January 22, 2010

January 22, 2010

Trade Alert:

   Buy SWKS May 22 2010 $15 Calls at $1.20 or better

Company Background:

Skyworks Solutions (SWKS) engineers, manufactures, and markets semiconductors. Their components are used worldwide and across several industries including the red hot Smartphone segment.

Short-Term Catalyst:

SWKS just reported their best quarter ever in terms of revenue and income. Management’s increasing their revenue and earnings guidance for the rest of 2010. Clearly things are looking up.

The main driver of growth in SWKS is their involvement in the Smartphone revolution. Among others, they’re providing components for Google’s (GOOG) highly anticipated Nexus One being manufactured by HTC.

Over the last year, SWKS’s stock has shot up over 250%.  Amazingly the stock isn’t overvalued.  Its PE ratio of 19 and PEG ratio of 1.29 are well below the average for the industry.

Despite the good news and valuation, SWKS didn’t take off after its earnings announcement.  I think it’s a case of bad timing.  The markets were already overheated and due for a pullback when they reported earnings.

Now as the markets pull back, the semiconductor industry is showing relative strength.
Chipmakers led the market higher over the last few months.  They’ve also held onto those gains better than other industries.

And SWKS is holding up better than the semiconductor industry.  It’s a strong company in a strong industry.  When the markets begin moving higher, SWKS should once again be one of the leaders.

Trade Details:

Underlying Stock Symbol: SWKS
Current Bid-Ask Price: $0.95 – $1.05
Option “Buy Up To” Price: $1.20
Break-Even On Stock At Expiration: $16.20
Maximum Risk Per Contract: $120

Exit Strategy:

SWKS is trading at $14.31 per share.  Resistance levels will be at $16.50 and again at $18.  Remember, we want this stock to move higher.  Support levels will be at $12.25 and $11.50.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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