iPhone 5 Plays: 5 Ways To Ride Tide Without Buying $700 Apple Shares
By David Zielenziger | September 14, 2012 6:47 AM EST
Shares of Apple (Nasdaq: AAPL), the world's most valuable technology company, set another record high in Thursday trading, after it announced the iPhone 5 will go on sale next Friday, and analysts from top investment banks raised their yearly targets, if not to the sky-high $1,111 set by Topeka Capital's Brian White.
Apple closed at $683.09, up $13.30, or 2 percent, after hitting a record $685.50 in the afternoon. To be sure, all U.S. stocks rose after the Federal Reserve announced it would continue its policy to inject cash into the U.S. economy. The S&P 500 Index rose 23.42 to 1,459.99, its highest close since 2007.
The Cupertino, Calif., electronics company, while costing plenty for a single share, is still priced reasonably compared to expected earnings. Its price-earnings ratio is 16, compared with 15 for International Business Machines Corp. (NYSE: IBM) and 20.96 for arch-rival Google (Nasdaq: GOOG), the No. 1 search engine.
Shares of Apple have gained 69 percent this year and a whopping 78 percent in the past 52 weeks as it's surged past $400, $500 and $600 marks, putting it into stratospheric territory it inhabits with companies like Google, which closed at $706.04, NVR Inc. (NYSE: NVR) which ended at $864.99 and Berkshire Hathaway Inc. (NYSE: BRK/A), which hit a record $132,851.
Why not buy shares of companies believed to be key Apple suppliers, contract manufacturers or partners? Here are five random suggestions:
ARM Holdings (Nasdaq: ARMH). As part of Apple's "think different" strategy, it's long developed microprocessors far afield, starting with a long collaboration on the PowerPC chips with IBM and the old Motorola semiconductor sector, now renamed Freescale Semiconductor (NYSE: FSL). When that ended, Apple turned to British developer ARM Holdings, which designs the central A6 processor governing the new phones.
ARM Holdings, though, like many chip companies, doesn't manufacture its designs. ARM's American Depositary Receipts closed Thursday at $27.47, up 78 cents, and have a P/E of 55.3. Shares have basically been flat for a year, despite the huge successes of the iPhone 4S and the iPad family.
ARM derives as much as 50 cents in royalties from every iPhone, says Steven Milunovich, analyst with UBS. Apple sold 26 million in its most recent quarter.
Qualcomm Inc. (Nasdaq: QCOM). The biggest U.S. designer of chips solely for mobile phones, San Diego-based Qualcomm supplies the long-term evolution (LTE) MDM 9615 modem and transceiver for the iPhone 5; moreover, its Snapdragon chips have been designed into new Windows 8 phones from Finland's Nokia Oyj (NYSE: NOK) and South Korea's Samsung Electronics (Seoul: 005930).
A Qualcomm buy is a play on developing mobile markets in iOS, Android and Windows. Shares closed Thursday at $63.90, up $1.46 but have gained only 17 percent this year. The chip designer's P/E is 21.52.
Sprint-Nextel Corp. (NYSE: S). The No. 3 U.S. wireless carrier was the last U.S. major to get the iPhone, in last year's fourth quarter, when it said it would spend $15.5 billion to carry the product for the next few years. It sold $4 billion worth of bonds last November and another $2 billion in February and last month said it would sell more to keep building its LTE network.
The Kansas City, Kan., carrier's shares closed Thursday at $5.20, up a dime, close to their yearly high, and have more than doubled this year.
But Sprint's unlimited data plan may be a compelling buy for new customers who don't want to pay new surcharges imposed by Apple's other partners, headed by AT&T Inc. (NYSE: T), the No. 1 telecommunications carrier, and Verizon Wireless, a unit of the Verizon Wireless unit of Verizon Communications (NYSE: VZ), the No. 2 U.S. carrier.
Shares of Verizon closed at $45.58 and have a P/E of 45 while AT&T shares closed at $38.15 and have a P/E of nearly 51. In the past, analysts suggested Apple, which had more than $117 billion in cash and investments last quarter, might acquire Sprint, whose value is $15.6 billion.
Jabil Circuit Inc. (NYSE: JBL). Much has been made about Apple's reliance upon Taiwan's Hon Hai Precision Industries (Taipei: 2317) and the abusive conditions at its Foxconn factories in China. Jabil, based in St. Petersburg, Fla., is also a major Apple supplier and makes glass products, provides mechanical insertion, moldings and other products.
Jabil shares, which closed at $22.15, up 16 cents Thursday, have a P/E of 11, and have gained 13 percent this year and 32 percent in the past year. To be sure, Jabil's fate is also tied to those of its other PC and electronics suppliers. Like the other U.S. contract manufacturers, it operates Chinese factories that have not been subjects of controversy.
Corning Inc. (NYSE: GLW). Corning's Gorilla Glass 2 is in every iPhone 5 as well as in many other mobile products and computers because it's durable and well-designed. Apple's late Chairman, Steve Jobs, worked out the supply arrangement with the venerable glass specialist in Corning, N.Y.
Long out of the Pyrex and home cooking business, Corning devotes all its expertise to advanced fiber optics and products like Gorilla Glass. Shares closed at $12.86, up 16 cents, and carry a P/E of only 9. Over the past year they've fallen 6 percent but are essentially flat this year.
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