Apple Inc. and China Mobile have officially signed the deal that will finally allow the Cupertino, Calif.-based Titan of Tech to sell iPhones to China Mobile’s 750 million smartphone customers. Apple's AAPL stock has run up about 15 percent since the launch of the iPhone 5S; now the stock is really ready to turn up.
China’s barring of the iPhone has always been a hurdle for Apple. Apple’s smartphone market has been largely saturated. Everybody who wanted an iPhone now has one, with the exception of China Mobile customers. The stocks of many Apple suppliers have peaked and receded because iPhone sales have plateaued. This has left limited growth potential for Apple stock and for its suppliers.
The only way for the stocks of Apple’s suppliers to appreciate is if the smartphone market itself grows, and now that is possible. Here’s a list of major Apple suppliers that will benefit from the China Mobile deal.
1. Apple Inc. (NASDAQ:AAPL): The best way to profit from Apple is to buy Apple. Apple peaked at about $700 in the fall of 2012. Since then, confidence in Apple stock has been mixed. However, with a fresh market comprised of three-quarters of a billion potential customers, Apple’s best days may be ahead of it. The iPhone 5S is already a blockbuster product, and production of the iPhone 6 is already being anticipated. If the iPhone 5S goes on sale in China and is received well, there’s no telling just how successful the iPhone 6 will be. Right now Apple trades around 14 times earnings, with a forward P/E ratio of about 9. That is overwhelmingly cheap from a value stock perspective. The bottom line is, Apple is a cheap, high-margin technology growth stock. Ruling out any significant head winds and anticipating some earnings multiple expansion, Apple stock could well see $800 a share. If Apple pulls in $50 per share in earnings next year, Apple will only be at 16 times earnings at $800. It's entirely possible.
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2. Qualcomm Inc. (NASDAQ:QCOM): Qualcomm builds the RF power management chips for the iPhone 5S, as well as the LTE modem and GPS transceivers. Qualcomm will profit from having three components going into each iPhone, in addition to the fact that they also make the Snapdragon processors that go into nearly every Android and Windows smartphone available on the market. Qualcomm is a company that will flourish as the smartphone market grows as a whole, a phenomenon likely to happen after this deal.
3. ARM Holdings PLC (ADR) (NASDAQ:ARMH): Apple utilizes ARM’s 64-bit architecture, and for every iPhone sold, ARM is paid a royalty. iPhone sales can be expected to explode, and thus, also, the price of ARM Holdings stock.
4. Avago Technologies Ltd (NASDAQ:AVGO): Avago has two components in the iPhone that help manage battery life and call clarity for voice-related activities in the iPhone. Avago stock is currently sitting at its all-time high, but could still see limited upside.
5. TriQuint Semiconductor (NASDAQ:TQNT): TriQuint makes radio frequency [RF] solutions and has a component in the iPhone. Be aware of the fact that TQNT has posted losses in the past despite iPhone participation, and therefore is a risky bet, regardless of its affiliation with Apple.
6. Micron Technology, Inc. (NASDAQ:MU): Micron is one of David Einhorn’s favorite stocks [alongside Apple!] and has enjoyed several stock upgrades as it continues to execute flawlessly. The $22-ish stock has price targets ranging from $25 to $30. Micron makes NAND memory for the iPhones, marketing its memory selection under the Elpida name, a company Micron acquired.
7. Broadcom Corporation (NASDAQ:BRCM): Broadcom makes the Murata Wi-Fi chip that goes into the iPhone 5S. Broadcom is another gamble stock in relation to Apple. Its stock took a hit in July or 2013 on lowered revenue guidance and weaker gross margins. Broadcom likely lowered guidance due to iPhone uncertainty, but it’s still a good idea to watch this one play out and make sure that it’s not external factors that are causing BRCM to be uncertain.
8. Cirrus Logic, Inc. (NASDAQ:CRUS): Cirrus Logic makes the audio codec chips for iPhone and iPads. Like Broadcom, Cirrus trades at half the price it used to. Apple has dropped Cirrus from use in the iPad, and it is unclear as to whether Apple will continue to utilize Cirrus components in future products. Time will tell.
9. Dialog Semiconductor PLC (FRA:DLG): Dialog Semiconductor is a new power management chip provider to the iPhone. Dialog has retreated from its 52-week high after issuing lackluster earnings guidance in October. Proceed with caution.
10. Skyworks Solutions Inc. (NASDAQ:SWKS): Skyworks makes power amplifier modules for the iPhone, and has two modules in each iPhone. This is another Apple affiliate stock sitting at its 52-week high after the China Mobile announcement. Tread carefully.
11. Corning Incorporated (NYSE:GLW): Corning makes Gorilla Glass, which comprises the iPhone screen. Be careful with this one; Apple has cozied up to GT Advanced (NASDAQ:GTAT), the maker of Sapphire Glass. Sapphire Glass is an ultra-durable glass that is used in the iPhone Touch ID button, as well as in the camera lens for the iPhone 5. Apple is rumored to be switching to Sapphire Glass altogether for its iPhone 6 display.
12. WILD CARD: Nuance Communications Inc. (NASDAQ:NUAN): Nuance is the provider of Siri for the iPhone. Nuance was once a $30 stock, but has seen its stock price halved and then some on murky 2014 guidance. If Nuance is unsure about its future despite stellar iPhone sales, that’s a problem. More sales should not lead to less revenue. Treat this one as a speculative stock; it has since rebounded from the plunge it took in late November after issuing questionable guidance.
At the time of publication, Nick Gwiazda owned shares of Micron Technology, Inc. and Apple Inc.