5 Superball Stocks: Skyworks Solutions Inc (SWKS), Alcatel-Lucent SA (ADR) (ALU)

The bull case for Skyworks Solutions
Many Fools think so. For example, CAPS member line70day points to “growth in China & India” underlying the company’s prospects and praises Skyworks’ “good cash flow-no debt” attributes.

HopefulRichKid1 insists that “their technology will continue to be greatly utilized.”

Meanwhile, narekR notes that “only few companies are really good in analog and RF semiconductor device design” — Skyworks being one of them. naterkR thinks the company “will even grow because of increasing number of medical and telecommunication electronics.”

As for me — remember how a few days ago I mentioned that I thought the stock was “not quite cheap enough to buy“? Yeah, well that was before Thursday’s sell-off. Today, after last week’s 11% price-drop, Skyworks does, in fact, finally look cheap enough to buy. Here’s why.

Despite sporting a 20 P/E ratio, Skyworks’ strong free cash flow and even stronger balance sheet combine to give this stock an enterprise value-to-free cash flow valuation that’s much, much cheaper than the P/E makes it look. Its EV/FCF ratio of 15.8 is, in fact, right in line with the stock’s 15.6% projected long-term growth rate, and this tells me that as of today, Skyworks has finally become fairly valued.

In short, while I’m tempted to wait for an even bigger discount to fair value before buying, the truth is that a quality company like Skyworks may never get there. Investors simply may never make the mistake of selling this stock down to a level where its bargain price becomes too obvious.

So my advice: If you were waiting for a buying opportunity on Skyworks, it has finally arrived. This stock is destined to bounce back from last week’s slump. It’s only a matter of time.

The article 5 Superball Stocks originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith does not own, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he’s currently ranked No. 321 out of more than 180,000 members. The Motley Fool recommends Vodafone and Apple and owns shares of Qualcomm and Apple.

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