Technology
Next Generation iPhones Could Be Huge for 6 Red-Hot Stocks
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If any stock has become the new bellwether, it’s technology giant Apple Inc. (NASDAQ: AAPL), and with good reason. Not only is the Apple universe a magnet for consumer dollars in multiple silos, the smartphone pioneer continues to break new ground, and the Apple nation breathlessly waits for each new iteration of the now 10-year-old iPhone line.
Apple posted outstanding second-quarter results and offered guidance above Wall Street estimates, so the company appears to be hitting on all cylinders. With the iPhone X and iPhone 8 announcements expected today, top firms on Wall Street are handicapping which vendors are poised to benefit.
A new Deutsche Bank report focuses on six top semiconductor stocks that all should have a piece of the Apple pie.
Analog Devices
This stock spiked recently and has come back into a good buy range. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
Top analysts believe that the Linear Technology acquisition is a big positive as it helped raise the level of business done with Apple. Analysts think that the company grew content in the iPhone 7 30% year over year, which bodes well for the iPhone 8 business. The Deutsche Bank report noted this:
We presently model Apple a 13% customer in fiscal year 2017 estimates despite our expectation for lower content in the high-end OLED iPhone. We believe that the 3D touch module historically designed by the company since 2015 may not be in OLED iPhones. Thus, the extent to which the company continues to enjoy Apple as a significant customer depends on the mix of iPhone sales and how many people purchase the OLED vs. non-OLED iPhones.
Analog Devices investors receive a 2.2% dividend. The Wall Street consensus price target is $94.10, and shares traded Tuesday morning at $82.15.
Broadcom
This stock has been on fire over the past year and remains a top pick across Wall Street. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand. Deutsche Bank noted this:
We expect Broadcom’s content in the iPhone to grow +40% year-over-year across higher performance products in RF (FBAR), combo chips, and we expect the company to add content related to wireless charging.
Broadcom investors receive a 1.65% dividend. The consensus price target is $273.81. Shares traded Tuesday at $248.20.
Intel
This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things is a big part of the shift. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.
The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
Earlier this year, Intel announced the purchase of Mobileye for $15.3 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is expected to be a big Internet of Things (IoT) segment going forward. Deutsche Bank sees the company expanding with Apple and noted this:
We anticipate that Intel’s mix will increase in next-gen iPhones. We do not anticipate any meaningful change in average selling prices for the company at Apple. We note that Intel’s exposure to Apple iPhones would mainly be within the Client Computing Group, which is ~55% of sales and is forecasted to grow 1% year-over-year by our estimates in calendar year 2017 estimates.
Investors receive a 3.05% dividend. The consensus price objective is $39.79, and shares were last seen trading at $36.10.
24/7 Wall St.ON Semiconductor
Aggressive accounts may want to look at this smaller cap play. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic integrated circuits (ICs) and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications. The company is in the midst of a transformation from a seller of commodity discrete chips into higher value added analog ICs, both through organic growth and acquisitions.
The company is a leading sensor company with a delivered balance sheet and positive cash flow. The Deutsche Bank report said:
The company has not historically had a meaningful exposure to Apple, however, we believe that their content is likely rising at Apple’s in next-gen devices. Specifically, we see them gaining content in the company’s fast charging solution (charger side vs. device side). We estimate that this could mean that Apple is ~5% to ON sales in 2017.
The posted consensus price objective is $19.08. Shares traded at $17.20 apiece.
24/7 Wall St.Qualcomm
This top technology stock was hit hard earlier this year and is still offering investors a great entry point. The stock jumps to number three from the 12th spot at JPMorgan. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.
In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.
Deutsche Bank said:
We expect Qualcomm’s revenue exposure to decline in next-gen handsets due to a potential allocation shift toward Intel. Prior to 2016, the company held 100% market share of discrete baseband processors at Apple. In 2016, Intel made significant in-roads to drive the company’s unit market share closer to 60%, in our estimation. We expect Qualcomm’s share to shift more towards Intel in next-gen iPhones. More meaningful for Qualcomm going forward, however, continues to be the royalty dynamic between Apple and them, which generates both a greater amount of revenue/profit from Apple.
Shareholders receive a 4.51% dividend. The $59.89 consensus price objective compares with the most recent close at $50.57.
Texas Instruments
This old-school chip tech company has come back into favor big-time. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators. Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets.
The company increased its quarterly dividend earlier this year by 32% to $0.50 per share, or $2.00 annualized. The increase reflects its continued strength in free cash flow generation and its commitment to return excess cash to shareholders.
Texas Instruments is a big partner with Apple, and Deutsche Bank said:
Texas Instruments exposure to AAPL has historically been described as across hundreds of parts and evenly spread out between their devices (we note that Apple’s revenue mix is ~60% iPhone,~10% each for Mac, iPad, Services, ~5% other). Furthermore, Apple was a 11% customer for the company in 2015; we forecast returning to that concentration in 2017 as inventories were worked down in 2016. We note that iPhones are a subset of this 11% mix and likely in the high-single digits range as a percentage of sales.
Shareholders receive a 2.43% dividend. The consensus price target is $88.21. The stock traded early Tuesday at $82.35.
These six top companies all are big suppliers to Apple in the iPhone space, and in other areas of the company’s burgeoning product line. With big product announcements expected, these stocks could be in the spotlight for some time.
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