1. A long-term debt-to-equity ratio of less than 0.5
2. A three-year-average revenue growth rate greater than 10%
3. A mid-capitalization market value (between $1 billion and $10 billion)
4. A three-year-average EPS growth rate greater than 10%
5. A price-to-earnings multiple that is < 20.0
Here’s an overview of the key aspects shared by all stocks in this group:
| Symbol | Company Name | LT Debt-to-Equity Ratio | Rev. Growth Rate (last 3 Yrs) | Market Capitalization | EPS Growth Rate (last 3 Yrs) | Price-to-Earnings (TTM) |
|---|---|---|---|---|---|---|
| CRUS | Cirrus Logic | 0 | 39.89 | $1.27 B | 15.79 | 9.1 |
| IPGP | IPG Photonics | 0.02 | 31.87 | $3.01 B | 61.54 | 20 |
| KLAC | KLA-Tencor | 0.22 | 14.29 | $9.68 B | 32.7 | 18.2 |
| SWKS | Skyworks Solutions | 0 | 16.84 | $4.55 B | 15.17 | 18.5 |
A discussion of each company’s respective statistics should help determine the one best suited for your portfolio.
Trends are positive for this audio/energy-entrenched chip maker
Cirrus Logic, Inc. (NASDAQ:CRUS), a producer of analog and mixed-signal integrated circuits, is focused primarily on consumer end-markets. These include audio, automotive entertainment, and portable devices like smartphones, tablets, as well as computers. Audio products contributed 93% of total revenue in 2012.
The company also operates a modestly sized energy-products division that caters to energy control, energy measurement, LED lighting, and energy-exploration applications. One example of its products’ use is in digital utility meters.
A more-than-doubling of audio-products revenue in fiscal 2013 (ended March 31) served to lift Cirrus Logic, Inc. (NASDAQ:CRUS)’ three-year average revenue growth rate to 40%. Launches of new offerings targeted at portable audio markets assisted the massive upturn. Resulting share-earnings growth was nearly 16% on an annual basis.
Cirrus Logic, Inc. (NASDAQ:CRUS)’ largest customer is none other than Apple, from which 82% of total revenue was derived in 2013. Management believes it can boost operating income at a 20% annual clip and revenue 15% per year over the long term.
In light of the stock’s reduced P/E ratio (trailing-12 months) of 9.1 and its clean balance sheet with no debt, Cirrus Logic, Inc. (NASDAQ:CRUS) shares offer an upside opportunity.
A booming laser technologies market
The second company that passed the screen was IPG Photonics Corporation (NASDAQ:IPGP), a maker of high-performance lasers and related products that are predominantly used for materials processing. Indeed, 87% of sales were in the materials market last year, particularly to general manufacturing, automotive, heavy industry, aerospace, consumer, and semiconductor/electronics customers. Another 8% was utilized for “advanced applications,” while 4% of sales were for communications purposes, and 1% was medical-related.
IPG Photonics Corporation (NASDAQ:IPGP)’s 32% revenue growth and 32% EPS growth rate jump off the page and the momentum, driven by the capturing of share in the materials market, remains positive. In fact, revenue and EPS climbed 22% and 11%, respectively, in the June period.
The company’s investments in R&D are bearing fruit, as its developments are often being incorporated in manufacturing processes as replacements for traditional materials. I liken the company to DuPont, a major Dow-30 component, due to that focus.
The company’s shares, at a trailing P/E of 20.0, have been erratic. The shares may well gain positive headway, given favorable earnings prospects in the near term.
