Cirrus Logic (CRUS) just made a new multiyear high. During the last quarters it got dragged up by Apple, its biggest customer. Apple’s success is also Cirrus’ current advantage, as it delivers chips that get assembled into Apple’s gadget devices.
The dark side of this symbiosis is Apple’s tendency to replace component suppliers for each new generation of its iPhones and iPads. It is not only the need to maintain the top notch tech quality of its products. The nice side effect is price negotiation power to the detriment of its suppliers.
The long-term chart above demonstrates the cyclical business of Cirrus Logic. Compare that to the chart of Apple (AAPL) below. Both charts have the same weekly bars and show earnings (pink) and revenues (orange and yellow) lines.
Apple’s revenues are predictable. That is most important for growth trend investors. Conversely Cirrus has only a moderately growing revenues and an erratic earnings line. Apple’s stock shot up almost hundredfold, while Cirrus delivered only a factor of about ten, which is, of course, still fine. Compared with the fulminant success of Apple Cirrus seems to have done something wrong.
But it hasn’t.
Producers of consumer goods like Apple have the chance to grow fantastically. Few do, but there is at least a theoretical chance. The reason is simple. Trend-companies can demand almost every price for their trend-product and they are on a trend…
For their suppliers it is a different story. They often have to fight just to stay profitable. Without a real brand and exchangeable products they are vulnerable to price wars.
Even worse, suppliers typically have a broad spectrum of products. Only few of them can and will become a top seller. For component suppliers it boils down to a mixed calculation and few outliers will be compensated by many others that produce only small profits or even losses.
Suppliers can’t become success stories. But they can show a volatile uptrend driven by temporary growth. Swing trading a temporary growth stock may make the trader happy but not the investor. Trend traders can juggle around with more temporary trends, but trend investors have to be more selective.
So, if you ever start a company, you know now what route to choose. Perhaps you will become the reborn Steve Jobs. If you aim for something more earthbound like being a humble trend investor, go for companies with a single or few products for the end consumer. These are the true growth stock candidates.
Finally combine real growth stories like Apple with this superior trend trading machine and you are on the right path. This AI software carves out intermediate trends better than most human traders could. It swing trades trends with a complex pattern recognition system by switching a position from long to short and back. For growth trend riding only the long signals should be followed.
Splitting the business into the investment judging task for the human and leaving the trading to the robot is my favorite recommendation.
Think about it.
