Apple (AAPL) is expected to launch the iPhone 6 in mid-September and the iWatch as early as October. Investors, in addition to betting on AAPL stock, are likely keen to invest in the stocks of those most directly benefiting from these two new product launches.
While the big names such as Broadcom (BRCM) and Skyworks Solutions (SWKS) get regular mention whenever the Apple ecosystem is discussed, there are other names, especially those in Taiwan, worthy of discussion. Many of these stocks have seen significant appreciation over the past year as speculation mounted about the iPhone 6 and iWatch launches.
Is there any potential money still on the table when it comes to the Apple supply chain? Let’s have a look.
Who Benefits — iPhone 6With the likely launch of two screen sizes — 4.7 and 5.5 inches — the folks at Foxconn are going to be extremely busy as the latest version of the popular smartphone is expected to generate sales 20% higher than the iPhone 5.
Year-to-date, HNHPF stock is up 39% through July 7 and 11% in the last month alone. Trailing the S&P badly over the past three years, Hon Hai needs the iPhone 6 product launch to maintain its momentum.
A second company — Pegatron — will handle about 30% of the assembly, with Foxconn doing the rest. Pegatron trades on the Taiwan Stock Exchange. For the average investor that’s a difficult buy.
An easier way to benefit from both these stocks is to pick up the First Trust Taiwan AlphaDEX Fund (FTW), a 40-stock modified equal-weighted portfolio using the AlphaDEX stock selection methodology to pick stocks from the S&P Taiwan BMI universe exhibiting specific growth and value factors. Both Pegatron and Hon Hai Precision are in the top 20 holdings.
Consider that the Taiwan stock exchange as a whole is trading at 16 times earnings compared to 19 times for the Nikkei.That means there’s still some room for Taiwan stocks to run.
Who Benefits — iWatch
The big winner when it comes to assembly is Taiwan-based Quanta Computer, which is expected to assemble 35 million of the estimated 50 million watches being shipped out for the fall launch. Quanta also trades on the Taiwan Stock Exchange and is even more difficult to buy here in North America than Pegatron.
To gain access to Quanta you’ll want to purchase the iShares MSCI Taiwan ETF (EWT), a 104-stock portfolio that tracks the MSCI Taiwan Index. The fund’s holdings are market-cap weighted. As a result Taiwan Semiconductor (TSM) accounts for 22% of the ETF’s $3.2 billion in total net assets. Quanta itself possesses a more modest 1.52% weighting.
Another smaller stock that should benefit from the iWatch is Universal Display (OLED), which provides LG Display (LPL) with the OLED patents necessary to produce the flexible, 1.52-inch OLED displays Apple requires for its new watch. Universal Display also happens to be one of my 5 Best Stocks to Buy for the Next 20 Years. This LG contract could be the seal of approval it has been looking for.
InvenSense (INVN) produces motion and sound sensors for smartphones, tablets and smart TVs. It has been trying hard to become an Apple supplier to no avail — until now. Seeking Alpha contributor Ayush Singh has come out with a very bullish article that suggests the company is ramping up its production capacity from 400 million units to one billion in anticipation of both an iWatch and iPhone supply contract. Nothing’s announced as yet, but a confirmation would clearly boost its stock.
The Logical Play
Everyone’s trying to figure out the best supplier bets when the obvious choice is right in front of them. That’s Apple, of course. Its stock is up 26% in the last three months on solid earnings combined with significant anticipation for the iWatch and iPhone product launches.
Over the past 12 months, AAPL stock has done well but so have its suppliers. If the iWatch and iPhone turn out to be big successes there will be plenty of room to run for both Apple, the two Taiwan ETFs, OLED and even INVN.
As far as I’m concerned, there’s still plenty of money to be made from Apple.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.