Riding Apple's Coattails

 | Sep 10, 2012 | 10:00 AM EDT  | Comments
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Stock quotes in this article:

aapl

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qcom

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ovti

This is the week that investors have been waiting for. No, not the details of QE3 that pundits believe will be forthcoming, and certainly nothing as trivial as Mario Draghi's latest policies to save the euro.

This is the week that Apple (AAPL) announces the launch of the iPhone 5. Consumers and investors will be hanging on every detail from Apple on one of its juggernaut products. Some analysts are already calling for some 250 million of these devices to be sold over the product's lifetime, putting some $50 billion of profit in Apple's coffers. The launch will also affect the whole ecosystem of Apple's suppliers, as well as businesses capitalizing on mobile platforms (for instance, social gaming), as the transition from a PC-centric model to one centered on mobility accelerates.

Here are two tech firms that should benefit from the successful rollout of next version of Apple's iPhone. Both stocks are relatively cheap, have strong balance sheets and appear poised to ride Apple's coattails.

Qualcomm (QCOM) designs and manufactures digital telecommunications products and services. Another important part of Qualcomm's business is granting licenses to use portions of its intellectual property portfolio. Components supplied to the iPhone 5: baseband processors.

Four reasons QCOM provides value to long-term investors at $62 a share:

  • Qualcomm has consistently grown both earnings and revenues in the low double digits on average annually over the past five years, despite the difficult economic environment and changing product cycles.
  • The stock is currently selling near the bottom of its five-year valuation range based on price/earnings, price/book and price/cash flow ratios.
  • QCOM has a robust balance sheet with more than $12 billion in net cash on its balance sheet (more than 10% of its current market capitalization). It also sports a 1.6% dividend yield and has grown dividend payouts at better than 10% clip annually over the past half-decade.
  • The company has beaten earnings estimates for 11 of the past 12 quarters, and is priced at 15x forward earnings, a discount to its five-year average (18.0).

OmniVision Technologies (OVTI) designs and develops semiconductor image-sensor devices worldwide. Components supplied to the iPhone 5: primary image sensors.

Four reasons OmniVision still has upside starting at just under $17 a share:

  • The company has almost $200 million in net cash (more than 20% of market capitalization) and is selling for just 14% above book value.
  • Because of the launch of the iPhone 5, consensus estimates have gone up more than 10% for 2013 in the last month, and OVTI sells for 10.5x forward earnings, a discount to its five-year average (15.3).
  • OVTI is selling near the bottom of its five year-valuation range based on its price-to-sales ratio (1.0) and has a five-year projected price-earnings-growth ratio of less than 1 (.94) .
  • The stock is showing good technical strength after recently bottoming. It just crossed over its 200-day moving average, as well (see chart).

Source: Yahoo!

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