What an awful time IQE (LSE: IQE) has had over the past year, its share price down by around 25% since the same point last May.
Rocked by a profit warning in November and then another worrying set of full-year financials in March — a report in which the semiconductor manufacturer warned of continued inventory unwinding in the VCSEL supply chain and ongoing softness in the mobile phone market — investors continue to march towards the exits.
Even my Foolish colleague Paul Summers, himself a holder of IQE stock, sold out of the AIM-quoted business on fears of these tough trading conditions and the company’s wafer-thin (pun fully intended) balance sheet.
And judging from the fresh set of shocking trading numbers released yesterday from Apple, I reckon more investors will be following Mr Summers out of the door.
In its latest financial release, the US tech giant, a major buyer of IQE’s products, announced that sales of the iPhone posted their biggest ever drop for any quarter in its history during the three months to March.
Revenues from its flagship device in the period plummeted 17% year-on-year to $31.05bn, the familiar problem of decimated Chinese demand hampering shipment levels. If you remember, poor sales of Apple’s core product was cited as the cause of IQE’s profit warning last autumn.
Back in March, IQE tried to put a positive spin on things by commenting that “there are strong signs that significant growth can be achieved in the second half of 2019 and into 2020 in both the group’s Photonics and Wireless business units.” Yesterday’s update from Apple casts a colossal shadow over that statement and for City forecasts of a 63% earnings rebound in 2019 too.
At current prices, I don’t believe that IQE’s high rating, a forward P/E multiple of 35 times, reflects the worrisome sales picture which could well stretch from the remainder of 2019 into the new decade. I’m fully expecting profits forecasts to be downgraded in the near future and for fresh flows of investor selling to materialise.
6% dividend yields
Why take the chance on IQE when there are plenty of better growth shares to pick from?
Take National Grid (LSE: NG) for instance. Scintillating profits growth isn’t the name of the game here — indeed, an earnings rise of just 4% is predicted for the current fiscal year — but for those seeking improvements over a long-time horizon, this FTSE 100 stock is hard to beat given the defensive nature of its operations.
The electricity network operator’s near-term growth story certainly looks more robust than that of IQE, National Grid commenting in April that better-than-expected inflation-related costs are helping to offset a rise in operating costs. And in the meantime, investors can take heart from the brilliant visibility created by its profits agreements with regulators in the US and the UK.
This stable outlook means that dividends at National Grid are expecting to keep dancing higher, meaning that investors can sink their teeth into a gigantic 6% forward yield. Throw a dirt-cheap corresponding P/E ratio of 14.2 times into the equation and I reckon the power play is a great stock to load up on today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.