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The Single-Best Derivative Play on Apple

What’s good for Apple, Cramer said Monday, is great for Cirrus Logic. He called it “the single-best derivative play” off Steve Jobs’ company.

Cirrus Logic, a proprietary chipmaker, earns more than two-thirds of its sales from audio-related products that help convert data to sound and vice versa. While the company used to focus on high-end stereo and audio-visual systems, now it’s going after portable devices like MP3 players, gaming consoles and smartphones. And included in that list are Apple’s iPhone and the iPad.

Apple right now accounts for a third of Cirrus’ sales. So as long at those products continue to see such amazing demand – with the iPhone commanding a 16% global smartphone market share and more than 1 million iPads being sold in just 28 days – this semiconductor should continue to push higher.

That’s why CRUS hit its 52-week high of $13.39 on April 29. But the debt drama in Europe last week knocked Cirrus down to $10.52, or 21%, by Friday’s closing bell, which is another reason Cramer likes the stock. Now investors have a chance to buy a great company at a huge discount, even though the stock rebounded about 10% today.

It’s true Cirrus is still a speculative play – its market cap is just $768 million – but the balance sheet is pristine and there’s $2.13 of cash per share, a remarkable amount for a $12 stock. And it’s as yet undiscovered, with just seven analysts covering CRUS: four “buys” and three “holds,” leaving room for the upgrades and coverage initiations that can send the share price flying.

Plus, even despite today’s jump in share price, CRUS still trades at only 10.8 times forward earnings with a long-term growth rate of 19%. That’s cheap when you consider that growth-oriented money managers would be willing to pay at least one times the growth rate for a stock like this. If Cirrus fetched that higher multiple, the share price could conceivably go to $20.33.

That being said, remember Cramer’s rules for spec stocks: no after-hours trading; only purchase in small increments; and use limit orders.

“You can pay up to $13” for Cirrus, Cramer said, but “you’ve lost the best reason for buying if you pay above that, which is the retreat after the blowout quarter … that attracted us to Cirrus in the first place.”

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CRUS
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AAPL
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