by Tom Taulli | September 20, 2012 8:15 am
Apple (NASDAQ:AAPL) can seem to do no wrong, even without its charismatic leader Steve Jobs. In a mere 24 hours, the company sold 2 million iPhone 5’s — an impressive enough feat to send the stock over $700.
Still, despite all the attention the tech giant has gotten lately, a key to its success is actually its extensive global ecosystems of partners. Apple has put together high-quality components to make the iPhone 5 such a must-have product.
That also means the company has high standards; Apple also won’t hesitate to suddenly drop a partner if it knows there is a better option. This recently happened with Audience (NASDAQ:ADNC), which was not able to get its voice-related chips into the iPhone 5. As a result, the stock fell over 60% on the news.
Brutal, huh? Not all of Apple’s partners were so unlucky though, and there is still money to be made by investing in Apple’s friends. Here’s a look at three of them:
Jabil Circuit (NYSE:JBL) manufactures the unibody aluminum casing for the iPhone 5. These casings are big business for the company, accounting for $2 billion in sales for the past year. Total sales were about $16.5 billion.
Jabil’s main business, though, is to provide electronic manufacturing services for industires like aerospace, defense, industrial instrumentation and telecommunications. Besides Apple, other large customers are Cisco (NASDAQ:CSCO), GE (NYSE:GE) and IBM (NYSE:IBM).
All in all, Jabil is trading at a reasonable valuation, with a P/E ratio of only 11. The company also produces large amounts of cash flows — $828 million in the past year.
Next up is Avago Technologies (NASDAQ:AVGO), which supplies the iPhone 5’s power amplifier module. And yes, power is extremely key for a high-end smartphone.
As for Avago, it certainly has an illustrious past, which goes back to the 1960s when it was the chip division for Hewlett-Packard (NYSE:HPQ). Since then, Avago has built a large platform of technologies, including over 6,500 products targeting areas like consumer appliances, data networking, servers and displays. The company has over 4,900 US patents.
Plus, a recent report from Sterne, Agee & Leach has a bullish take on Avago — and not just because of its Apple halo. The report notes that Avago is likely to benefit from growth in markets for 3G and 4G markets as well as datacenters. It also notes that the company has strong free cash flow generation because of its more-than 30% operating margins.
Still, the report does acknowledge that the Apple business will be its key growth driver. The boost could account for 60% to 70% of quarter-over-quarter growth. Thanks, iPhone.
Last but not least is Cirrus Logic (NASDAQ:CRUS). This company is known for developing audio codec chips for the iPhone 5, but there are rumors that the relationship has expanded. Apple may also be using Cirrus’ technologies for noise suppression and cancellation.
Regardless, the relationship has been key for Cirrus; keep in mind that it gets about 60% to 70% of its revenues from Apple!
Still, Cirrus’ product mix is somewhat diversified. It has a chip business, for example, to help control and measure energy usage — products that are helpful for digital utility meters, LED lamps and lighting ballasts.
In light of all the success, the shares of Cirrus have spiked by 176% in 2012 — and the forward P/E ratio is still a fairly reasonable 14X. Not surprising, though, considering that the company has been growing its revenues at a sizzling 60%+ rate.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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