Shares of Cirrus Logic, Inc. (NASDAQ:CRUS), Skyworks Solutions Inc (NASDAQ:SWKS), Avago Technologies Ltd (NASDAQ:AVGO), InvenSense Inc (NYSE:INVN), NXP Semiconductors NV (NASDAQ:NXPI), and Qorvo Inc (NASDAQ:QRVO) are up after Apple Inc. (NASDAQ:AAPL) reported solid fourth quarter results. Let’s take a closer look at the Apple supplier stocks and analyze relevant hedge fund sentiment toward them.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see more details here).
Given China’s slowing economy, many bears expected soft results for Apple Inc. (NASDAQ:AAPL)‘s quarter, as demand for luxury products usually falls in uncertain times. The bears thought that fewer Chinese would buy the $600-$800 iPhone when they could buy a similar phone with the same features for half the price. However, the bears were wrong, as Apple’s fourth quarter results were better than expectations. For the 11th quarter in a row, the technology giant beat analyst earnings estimates, with an EPS of $1.96 per share on revenues of $51.5 billion (up by 22.3% year-over-year), exceeding estimates by $0.08 per share and $380 million, respectively. Apple’s iPhone revenue increased by 36% year-over-year to $32.3 billion, iPad revenues declined by 20% to $4.3 billion, Services revenue rose 10% to $5.1 billion, and gross margin inched up 1.9% to 39.9%. Guidance is pretty much in-line, with management expecting gross margin of 39-40% for the first quarter. Apple’s mainland China iPhone revenues rose 120% year-over-year, and over 50% of Chinese iPhone purchasers were first time buyers. Given Apple’s strong quarterly performance in China, Apple’s iPhone demand is more inelastic than previously thought.
Apple Inc. (NASDAQ:AAPL) suppliers have traditionally been the high beta way of playing upcoming iPhone launches or quarterly earnings expectations. Because Apple makes up a substantial percentage of many chip supplier’s top and bottom lines, the chip stocks are correlated with Apple iPhone or iPad demand. This quarter is no different, as shares of Cirrus Logic, Inc. (NASDAQ:CRUS), Skyworks Solutions Inc (NASDAQ:SWKS), Avago Technologies Ltd (NASDAQ:AVGO), InvenSense Inc (NYSE:INVN), NXP Semiconductors NV (NASDAQ:NXPI), and Qorvo Inc (NASDAQ:QRVO) are all up after Apple reported solid results.
Apple’s strong quarter is good news for its chip suppliers, as they realize more revenues if Apple sells more iPhones. Apple’s more inelastic iPhone demand is also good in that it means more stable revenues for Apple chip suppliers. Given that the era of cheap debt is rapidly coming to an end, there has also been a wave of consolidation in the industry that should reduce oversupply and firm up average selling prices.
On the next page, we analyze the smart money’s top picks among the Apple suppliers.