by Jeff Reeves | March 8, 2012 5:00 am
Apple (NASDAQ:AAPL), once again, is the stock that everyone is talking about. Apple CEO Tim Cook didn’t disappoint with Wednesday’s new iPad reveal, showing off the tablet’s newest iteration, complete with a new display, better camera and voice recognition software. As an added bonus, he took the wraps off the new Apple TV.
But as the hoopla of Wednesday’s Apple iPad event dies down, investors should focus less on the gadgets and more on the profits to be had by investing in this phenomenal tech stock. AAPL is up about 50% in the past 12 months and more than 520% in the past five years — and as I wrote yesterday, Apple stock remains a strong buy.
But what if you’re skeptical of the red-hot run, and instead are looking for other ways to ride the Apple wave — limiting exposure to downside risk but still tapping into AAPL growth?
Well, look no further than some of Apple’s biggest suppliers. Many of these stocks are booming now because of their relationship to the tech giant, but still have other operations that will provide stability if the music stops.
Here are seven great ways to buy Apple … without buying AAPL:
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In early June, data storage company Fusion-io (NYSE:FIO) pulled off a highly successful IPO. The company priced its deal at $19, which was above its $16-$18 range. On its first day of trading, FIO shares increased 18.4%.
Why the enthusiasm? Well, because Fusion-io is one of those cloud computing and storage stocks you hear so much about. It’s also a plus that it counts Facebook among its customers. But a big reason for the appeal of FIO is its chief scientist: Steve Wozniak, the co-founder of Apple.
The company reportedly gets about 24% of its revenue from Apple. Its flash memory technology is a big part of speeding up online response times. With a 4G iPad in the works, that puts an increasing demand on data-heavy multimedia like video, Fusion-io is well-positioned to benefit from Apple’s continued success.
The Facebook partnership is an added bonus, and a bit of diversification some might find very attractive. The stock is down since its November peak but has been on the rebound lately.
Skyworks Solutions (NASDAQ:SWKS) isn’t exactly a sexy stock if you read the generic company description. It makes all manners of detectors, diodes and switches for electronics — and unless you have an electrical engineering degree, you probably won’t have a lot of interest in the product specs.
But if you’re an investor, you should be very interested in the fact that Skyworks provides some of the parts for the iPhone. As a result, the small-cap company has seen revenue surge almost 80% in the past two years.
Shares took a dive in late 2011 on fears that Skyworks would not be a supplier for the highly anticipated iPhone 5, but shares quickly have come roaring back — tacking on 80% in about three months.
There is a chance Skyworks could indeed miss out on juicy iPhone 5 contracts, so investors should beware. But SWKS also supplies other major smartphone manufacturers and has big growth potential on that front to mitigate the downside.
And if it lands both a big iPhone sales deal as well as growing contracts from other firms? Well, then the sky is the limit for SWKS.
Cirrus Logic (NASDAQ:CRUS) is another electronics component company, much like Skyworks. CRUS specializes in “mixed-signal integrated circuits” and is another Apple supplier, only it services primarily the iPod and iPad.
The connection to Apple is super attractive. But even more attractive is a P/E of less than 10 even after a stunning 44% gain so far in 2012! Rivals in the electronics business trade for price-to-earnings ratios of twice that.
Cirrus supplies manufacturers of Blu-ray players, TVs and stereo speakers, too, so there’s diversity in the company’s revenue stream. As gadgets in general see higher adoption and the need for more complex circuitry, CRUS is riding the high-tech wave.
If Apple keeps booming and throwing more business Cirrus’ way, the growth for this stock will truly be impressive.
Qualcomm (NASDAQ:QCOM) is one of those Wall Street rebirth stories that are so compelling. The company was founded in 1985 and saw huge growth in tech and internet operations — before crashing from a split-adjusted price of almost $90 to a mere $15 per share. It tried to claw its way back with cellphones, but the smartphone business was leaving QCOM in the dust.
Now, Qualcomm has forged a highly lucrative contract with Apple for the use of its proprietary CDMS mobile technology. That has taken the stock from dead money back into growth mode — with AAPL a large driver of the nearly 40% revenue growth Qualcomm saw from fiscal 2010 to 2011
QCOM is the sole supplier of baseband chips for the iPhone 4S, and you can be sure that the iPhone 5 will be very reliant on Qualcomm technology, too. As InvestorPlace author Tom Taulli pointed out recently, the company expects to generate revenues of $18.7 billion to $19.7 billion. That’s another 25% to 32% over 2011’s numbers.
Another plus for you risk-averse investors is that unlike some of the other suppliers on this list, Qualcomm is a mega-cap tech stock with plenty of other irons in the fire. It is a $100 billion stock and won’t evaporate without Apple, paying a decent dividend to shareholders and sitting on an $11.5 billion pile of cash.
NXP Semiconductors NV (NASDAQ:NXPI) is a stark contrast to Qualcomm. It is a small-cap stock based in the Netherlands, not a giant of Silicon Valley, and it’s less than six years old.
It also doesn’t currently have a lucrative contract with Apple.
But if you want to get into the speculation business, then NXPI is a very compelling stock. That’s because this semiconductor company develops “near-field communication technology.” Think of it as a very short-range Wi-Fi network. You already can use your smartphone to pay for some things, and it’s only a matter of time before it’s common practice to swipe your phone instead of a credit card at the cash register.
It’s widely speculated that NXP is going to be a key supplier for the iPhone 5 — and this company could dominate the near-field technology chip business if it makes a successful debut.
But be warned. This company currently is bleeding cash and is very much still in the start-up phase. But if the 50% surge in shares so far in 2012 — almost twice the returns of Apple stock — are any indication, investors seem to think NXP is worth the risk.
Broadcom Corporation (NASDAQ:BRCM) is a wireless semiconductor giant that focuses on gear to deliver voice, video and data connectivity. Broadcom has stood out for a while as one of the biggest beneficiaries from Apple orders to supply parts that go into iPhones and iPads.
Consider that in late 2011, even as chipmaker stocks like Texas Instruments (NASDAQ:TXN) and Altera Corp. (NASDAQ:ALTR) were cutting estimates, Broadcom kept on target.
Overall weakness in the chip market certainly is a problem for Broadcom. Shares are significantly in the red during the past 12 months because of this trend. But if you’re looking to buy into Apple, BRCM might provide an opportunity to seek out value instead of red-hot growth. The company has a forward P/E of about 11 right now vs. 16 for Altera and other competitors.
If you believe the forecasts, Broadcom is set to see significant earnings growth in 2012 over last year — about 18%, followed by an additional 18% from 2012 to 2013.
A 10-cent quarterly dividend sweetens the pot, too.
Want to buy Apple, but don’t want to pay more than $500 per share? Want to get a focused play on the stock that still has a little diversification just for safety’s sake? Many of these suppliers achieve those goals — but don’t overlook ETFs.
Take the Select Sector Technology SPDR (NYSE:XLK) that has a 17.5% weighting on Apple as of this writing — with the Nos. 2 and 3 positions being Microsoft (NASDAQ:MSFT) and International Business Machines (NYSE:IBM), both at around 8%. XLK is up about 13% so far in 2012 vs. about 30% for Apple, but you’re trading diversification for returns, and that reduces your risk if Apple heads south.
Same for the iShares Dow Jones US Technology ETF (NYSE:IYW). In this case you have a 20% weighting in Apple, then 9% in IBM and MSFT at Nos. 2 and 3. This fund is up 15% year-to-date, beating the Nasdaq but obviously not keeping place with the performance of Apple alone.
A bonus: Both of these funds also have a footprint in many of the suppliers named here, in case you’re having trouble choosing.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.
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