How to Play Apple for Less Than $100 a Share
Apr 29th 2012 11:08PM
Updated May 1st 2012 11:22AM
By now you've heard the news that Apple (NAS: AAPL) once again stuck it to Mr. Market -- nearly doubling its quarterly profit on higher-than-expected iPhone sales. But the bigger winners here are the Apple suppliers, which are riding high on the tech titan's latest earnings report. This creates an opportunity for investors to grab a piece of Apple's momentum without spending an upwards of $600 a share.
Let's take a look at how these Apple suppliers will outperform the market going forward.
|Cirrus Logic (NAS: CRUS)||21||76%|
|Skyworks Solutions (NAS: SWKS)||26||72%|
|Broadcom (NAS: BRCM)||22||24%|
|Nuance Communication (NAS: NUAN)||168||18%|
Shares of Apple tumbled as much as 13% leading up to the company's second-quarter earnings last week. However, it looks as if the Street will have to save its misguided worries of an Apple slowdown for another time. The world's most valuable company slayed expectations as sales of its popular iPhone surged 88% in the period. Apple sold 35.1 million smartphones, while analysts had predicted 30 million in the quarter -- hardly a sign of slowing momentum.
Apple wouldn't be where it is today without its suppliers. Strong relationships with reliable suppliers are key to meeting demand and controlling costs. While all of these stocks enjoyed a sizeable boost after Apple released earnings, Cirrus Logic climbed 33% in the past week while Skyworks climbed 14%. That's a significant jump compared with Apple's 5.2% jump across the past week.
As a maker of high-precision audio chips used in the iPod, iPhone, and iPad, Cirrus Logic has benefited greatly from the Apple frenzy. In fact, Cirrus generates 63% of its sales from Apple. The semiconductor company should keep winning with Apple by its side, but what happens when the tech giant takes its business elsewhere? Cirrus needs to diversify its revenue channels if it wants to be in the game for the long run. In the meantime, the stock should push higher thanks to strong international demand for iProducts.
On a similar note, Skyworks Solutions makes amplifier chips that are used in iPhone and iPad devices. With the next-generation iPhone said to launch later this year, Skyworks should continue to ride the Apple wave. As a leader in the area of mobile connectivity, the company would further benefit from a new LTE-equipped iPhone.
Unlike Cirrus, Skyworks doesn't have all of its chips in one basket; in fact, some of its other big-name clients include Nokia, Samsung, and Sony. Even without Apple, I think Skyworks will continue to grow in value alongside the mobile market. For this reason, I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS.
Fruits of Apple's labor
Broadcom is another chip supplier that is well positioned within the mobile industry. The company currently claims a whopping 70% share of the Wi-Fi and Bluetooth connectivity market. Broadcom is also ahead of competitors when it comes to developing chips for next-generation Wi-Fi.
Nearly half of Broadcom's revenue comes from its wireless connectivity products, which means its lead position in 5G Wi-Fi should pay off as new products reach the market. The chipmaker reports earnings on Tuesday, which will give us more insight into the company's financials.
The king of Siri
Nuance Communication is to blame for the technology behind Siri. While voice recognition is still in its early stages, the software allows us to control our smartphones by speaking rather than pushing buttons. In the future, I see speech recognition spanning a variety of industries and applications. But for now, we'll have to be content with Siri. However, if Apple's latest iPhone sales (more than 35 million) are any indication, the world loves Siri.
Still, Nuance Communication has a history of underperformance in its closet. With a beta north of 1, the stock looks extra volatile relative to the market. Lucky for me, I don't mind a bit of volatility, assuming I plan to be in the stock for more than a few years. The way I see it, Apple has built a strong supplier relationship with Nuance through its Siri-capable iPhone 4GS devices -- meaning it will probably tap the company for its next-generation iPad and maybe even the rumored iTV.
There are plenty of opportunities in the tech sector outside of Apple. Please understand, I'm not recommending these stocks instead of Apple, but rather as a supplement to it. A year from now, I believe shares of Apple will be closer to the $1,000 mark. Growing demand for iPhones and iPads in China should help fuel this growth, and I expect Apple's suppliers to continue to benefit as well.
If you're still hungry for more moneymaking opportunities, I invite you read a free report from The Motley Fool titled "The Stocks Only the Smartest Investors Are Buying." It won't be around forever, so get your free copy while it's still available.
At the time this article was published Fool contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Cirrus Logic and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Nuance Communications and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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