Three Stocks to Profit from the Growth of Smartphones and Tablets
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Mobile devices like smartphones and tablets offer tremendous growth prospects over the following years, there is not much doubt about that. The big and well known players are not the only way to make profits from this trend; some investors may want to take a look at the companies that provide chips and related technologies for these devices.
ARM Holdings (NASDAQ: ARMH) has been one of the clearest winners from the mobile revolution, its chips have been tremendously successful in this space, and shareholders benefited with astronomical returns over the last years. The company´s stock was trading around 3.5 USD at the beginning of 2009 and is now near 27 USD. That is a good reminder of how rewarding this opportunities can be if one is correctly positioned.
Unfortunately ARM seems expensive right now. Trading at a P/E ratio of more than 44.5 times next year average earnings estimate there is not much room for error. Valuation is too high and if there is any disappointment investors could suffer big price declines. The competitive landscape in this industry changes very fast and Intel has just announced new launches to compete with ARM. It´s too soon to tell if Intel has any chance against ARM in the mobile industry, but at this prices ARM looks quite risky.
Broadcom (NASDAQ: BRCM) manufactures semiconductors for smartphones and tablets, and some of the company´s products can be found in iPads or many smartphones that use Android, for example. It has a great track record of success in detecting industry needs and has been announcing some promising new launches recently.
Over the last quarters Broadcom has reported better than expected earnings and in December company´s management increased their outlook for sales and margins, so there is good earnings momentum behind this stock. Valuation is much more reasonable than in ARM´s case with a forward P/E of 11.3. This may be a good alternative for investors looking for promising growth stocks with moderate valuations.
Qualcomm (NASDAQ: QCOM) is probably one of the safer stocks in the sector since it´s the biggest one in terms of market cap and it also pays a dividend, something you don´t see many often in this industry. The dividend yield is 1.5% at current stock prices, which does not sound like a big return, but has been increasing over the last years. This dividend should help reducing volatility for investors.
The company is really well positioned to benefit from growth in iPhone sells which have reportedly been really strong over the last months, particularly since the launch of iPhone 4S. The company does not seem overpriced considering its quality and growth prospects, it trades at a forward P/E of less than 14.
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