One of the secrets to getting rich in the stock market is to look where no one else is looking. 

While Apple (Nasdaq: AAPL) gets an inordinate amount of attention from investors, three billionaire gurus have been focused on buying shares of a small-cap company that makes products for Apple’s popular iPhone. 

It’s much easier for a company with $1 billion in revenue to grow than it is for a company with $176 billion in revenue (as Apple had last year). While the iPhone 6 will likely boost Apple’s revenues, the increase won’t be nearly as great in percentage terms as it would be for a smaller company that’s supplying a key component.

Billionaires George Soros, Ken Griffin and Seth Klarman all know this. That’s why they own a combined 12% stake in Apple supplier RF Micro Devices (Nasdaq: RFMD), which provides radio frequency (RF) chips to Apple, Samsung Electronics (OTC: SSNLF) and BlackBerry (Nasdaq: BBRY). 

Earlier this year, RF Micro Devices agreed to merge with TriQuint Semiconductor (Nasdaq: TQNT). The merger combines the RF market’s third- and fourth-largest players, giving them a 35% share of the market. 

Big Benefits
The merger is one of equals. Each company’s shareholders will own 50% of the new company. Klarman and his Baupost Group will benefit from this, as he owns shares of both RF Micro Devices and TriQuint.

What’s unique about RF Micro Devices and TriQuint is that they complement each other. This will allow the combined company to better compete and broaden its array of products to its customers. The company also expects to see about $150 million a year in combined cost savings.

RF Micro Devices sees the merger allowing the company to grow not only in its existing markets, but to also tap into new developed markets. The three global markets it plans on focusing on are mobile devices, network infrastructure, and aerospace and defense. For the aerospace and defense market, the focus will be on radar, next-generation base stations and optical communications.

In terms of emerging markets, one area that RF Micro Devices plans to focus on is the Internet of Things. This involves being connected at all times and includes wearable technology, the connected home and automotive Wi-Fi. The proliferation of devices centered around the Internet of Things will likely further drive demand for RF Micro Devices’ components.

RF Micro Devices expects the current quarter will be a strong one: After beating earnings estimates last quarter, the company raised its forecast to $0.17 a share. Analysts had been expecting RF Micro Devices to earn $0.11 a share for the first quarter.

Still A Compelling Value
While shares of RFMD are up more than 80% this year, they still look cheap according to several metrics. 

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RFMD data by YCharts

RFMD is trading at a forward price-to-earnings (P/E) ratio of only 11 times next year’s earnings and has a P/E-to-growth (PEG) ratio of only 0.7. Compare this with Apple, which is trading at 13 times next year’s earnings and a PEG ratio of 0.9.

Besides these three billionaires, activist hedge fund Starboard Value also owns a stake in RF Micro Devices. Starboard has made the case that the merger could create even greater synergies than the company expects, perhaps more than $200 million in annual cost savings.

Risks to Consider: Any snag in the merger process could send shares of RFMD lower. If the merger is completed, the combined companies will also have their work cut out for them in the integration process.

Action to Take –> With the forthcoming debut of Apple’s iPhone 6, RF Micro Devices offers a great blend of growth and value. A price target of $13 — based on an industry-average price-to-sales ratio of 3.2 and a forward P/E of 15, which is less than the industry’s average of 24 — represents upside of over 30%.

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