2 Smart Buys In The Smartphone Arena You Can't Pass Up

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Many smartphone stocks are venturing into new products. New technology is exciting, but investors should be careful not to be swept up in the excitement. Investors should require reasonable valuations before buying stock. Are any intrepid smartphone stocks trading at attractive price multiples?

BlackBerry launching new models to survive

BlackBerry’s (NASDAQ: BBRY) new mobile device, the BlackBerry Z10, has been getting a lot of buzz.  However, it has not been all good news, given that the company’s security features are now coming under scrutiny.  The Canadian government has announced a warning to BlackBerry users to be very careful when sending PIN-to-PIN messages.  In a memorandum released by Public Safety Canada, it was indicated that, “Although PIN-to-PIN messages are encrypted, the key used is a global cryptographic ‘key’ that is common to every BlackBerry device all over the world.”  This implies that messages sent via this method can be viewed by virtually any BlackBerry user, worldwide.  The memo further stated, “Any BlackBerry device can potentially decrypt all PIN-to-PIN messages sent by any other BlackBerry device.”

Other smartphone makers will be seeking to take advantage of this development so as to capture some of BlackBerry’s market share.  This includes Samsung, which announced its KNOX gadget has a competitive advantage.  This mobile novelty is dubbed the “mobile solution for work and play.” The device deals with mobile security requirements in the corporate setting, and given the increasing popularity of smartphone usage in the business environment, the matter of security is important, especially with sensitive company information being circulated among employees.

According to Samsung, “Samsung KNOX addresses platform security with a comprehensive strategy: hardward baked in Secure Boot, ARM TrustZone based Integrity Measurement Architecture and Kernel with built in Security Enhanced Android Mandatory Access Controls to secure the system.”

Apple (NASDAQ: AAPL) also has its iPhone, which has been used in business solutions for employers and employees to stay connected.  In promoting its product, Apple stated, “iPhone gives you all the tools you need to stay on schedule and get you through the day.  Easily manage all your work tasks, connect with colleagues and customers, and stay updated on meetings and agendas.”

New Mobile Device Component Material

Mobile device glass supplier Corning (NYSE: GLW) has invented another material. This new product, called Willow, is flexible.  According to Corning, Willow glass “will help enable thin, light and cost-efficient applications including today’s slim displays and the smart surfaces of the future.  The thinness, strength and flexibility of the glass has the potential to enable displays to be “wrapped” around a device or structure.  As well, Corning Willow Glass can be processed at temperatures up to 500 C.”  However, full advantage is yet to be taken of this latest development, as companies have yet to manufacture devices that are able to fully utilize the Willow glass.

Google Glass

Google (NASDAQ: GOOG) also has something new on the table with the possibility of a Google Glass launch in 2014.  The company has plans to develop eyeglass-embedded computers, which should give quick and easy access to information displayed above the eyes.  According to an article in The Boston Globe, this will “be offered for $1,500 to developers and will ship in early 2013.” The company is also having discussions with a start-up company, Warby Parker, to assist with the design of the eyeglass-embedded computer.  According to the New York Times, Warby Parker is an “e-commerce start-up company that sells trendy eyeglasses.”

Watch mobile device

Not to be left out, Apple also has been working on wearable technology with its wrist-watch.  The long awaited iWatch boasts a touch screen that is able to handle a series of functions from perusing a phone call list to sorting music playlists. According to Apple, “A response to a current text message can even be managed given a simple virtual keyboard configuration across the face of the flexible display.” The company recently submitted a patent application for its latest invention.

Valuation

How are these stocks priced in the market today?

<table> <tbody> <tr> <td> <p><strong>Ticker</strong></p> </td> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>P/E</strong></p> </td> <td> <p><strong>P/S</strong></p> </td> <td> <p><strong>P/B</strong></p> </td> <td> <p><strong>P/FCF</strong></p> </td> <td> <p><strong>D/E</strong></p> </td> <td> <p><strong>EPS Growth Next 5 Years</strong></p> </td> </tr> <tr> <td> <p><span>NOK</span></p> </td> <td> <p><span>Nokia</span></p> </td> <td> <p><span>0</span></p> </td> <td> <p><span>0.35</span></p> </td> <td> <p><span>1.29</span></p> </td> <td> <p><span>0</span></p> </td> <td> <p><span>0.69</span></p> </td> <td> <p><span>5.0%</span></p> </td> </tr> <tr> <td> <p><span>BBRY</span></p> </td> <td> <p><span>BlackBerry</span></p> </td> <td> <p><span>0</span></p> </td> <td> <p><span>0.56</span></p> </td> <td> <p><span>0.74</span></p> </td> <td> <p><span>8.48</span></p> </td> <td> <p><span>0</span></p> </td> <td> <p><span>5.0%</span></p> </td> </tr> <tr> <td> <p><span>GLW</span></p> </td> <td> <p><span>Corning</span></p> </td> <td> <p><span>10.92</span></p> </td> <td> <p><span>2.31</span></p> </td> <td> <p><span>0.86</span></p> </td> <td> <p><span>19.82</span></p> </td> <td> <p><span>0.16</span></p> </td> <td> <p><span>12.0%</span></p> </td> </tr> <tr> <td> <p><span>AAPL</span></p> </td> <td> <p><span>Apple</span></p> </td> <td> <p><span>9.65</span></p> </td> <td> <p><span>2.43</span></p> </td> <td> <p><span>3.14</span></p> </td> <td> <p><span>9.12</span></p> </td> <td> <p><span>0</span></p> </td> <td> <p><span>19.0%</span></p> </td> </tr> <tr> <td> <p><span>MSFT</span></p> </td> <td> <p><span>Microsoft</span></p> </td> <td> <p><span>15.43</span></p> </td> <td> <p><span>3.23</span></p> </td> <td> <p><span>3.24</span></p> </td> <td> <p><span>11.39</span></p> </td> <td> <p><span>0.2</span></p> </td> <td> <p><span>8.4%</span></p> </td> </tr> <tr> <td> <p><span>GOOG</span></p> </td> <td> <p><span>Google</span></p> </td> <td> <p><span>25.6</span></p> </td> <td> <p><span>5.46</span></p> </td> <td> <p><span>3.83</span></p> </td> <td> <p><span>20.54</span></p> </td> <td> <p><span>0.08</span></p> </td> <td> <p><span>14.4%</span></p> </td> </tr> </tbody> </table>

BlackBerry and Nokia are cheap, but investing in them is a bet on a turnaround. As such, they ought to be cheaper than their peers with currently profitable operations.

Corning and Apple, on the other hand, are both cheap and currently profitable. The both trade at cheap price-to-earnings valuations and have great growth prospects. Corning trades at a discount to book value, which is particularly compelling considering that some of its value—internally developed R&D and brands—are not recognized on balance sheets.

Microsoft and Google are pricier. Microsoft is only attractive based on its price-to-free cash flow multiple, while Google is richly priced based on multiple valuation ratios.

Conclusion

Investors interested in the smartphone market and new device launches should consider Apple and Corning as buy candidates.


BillEdson11 has no position in any stocks mentioned. The Motley Fool recommends Apple, Corning, and Google. The Motley Fool owns shares of Apple, Corning, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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