Smart Investments for Apple Lovers
Nandini is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) shares have been on a major roll for the past many years. To see from the perspective of gains, in July 2002, Apple stock used to trade for about $7 per share. Had anyone invested $10,000, he could have bought roughly 1,429 Apple shares. If one held onto those shares, they would have been worth over $894,000 today.
Apple has grown rapidly and brought a major revolution in several industries over the past decade: iTunes changed the music industry, the iPhone has transformed the smart-phone sector and the iPad has created an entirely new market for tablets. The company is on a roll and with the tablet market penetrating quickly and a potential for an integrated Apple television in the future, Apple's stock shall have some further room to grow.
The issue that arises in purchasing stock in the company is that Apple's stock is no longer $7. Many may incessantly argue that Apple is richly priced, while others will point to the company's future earnings potential as a clue to how cheap the stock is. Nevertheless there's one thing we can all agree on, if you want to ride the Apple growth train why not take a look at their suppliers. Below are a few companies that should profit off of the success of Apple and may be a more viable option for investing.
Akamai (NASDAQ: AKAM)
Founded by MIT professors, the company provides back-end infrastructure service and software for several big customers, such as the U.S. Security and Exchange Commission, Toyota Motors, the NFL and Morgan Stanley, to name only a few. Akamai states on their website "if you've ever shopped online, downloaded music, watched a web video or connected to work remotely, you've probably used Akamai's cloud platform."
Akamai provides Apple with infrastructure support for content delivery, QuickTime Streaming Operations and software downloads for Apple's website. Apple, having foreseen Akamai becoming such a vital partner back in 1999, invested $12.5 million dollars for a roughly 5% stake in Akamai. Steve Jobs was quoted as saying "Together, Apple and Akamai will deliver the highest quality and easiest to use Internet streaming video content available."
Akamai shares currently trade around $35. Returns over the past 10 years have been over 3,100%, roughly 76% in three years and around 21% in the past year. If you're looking for a good investment with direct relationship to Apple, Akamai may be an excellent opportunity.
Qualcomm (NASDAQ: QCOM)
With a market cap over $100 billion, Qualcomm is a major supplier in the technology industry. The company provides Apple with processor chips for products like the iPhone and iPad. A report published by Forbes states Qualcomm makes approximately $23.54 off each iPhone 4S sold. With 26 million iPhones sold in Apple's recent Q3 earnings, Qualcomm racked in over $612 million dollars in just three months, from only one product.
The new iPhone is also set to be released later this year and despite 26 million iPhones still being sold, many are waiting for the newest Apple gadget to be released before upgrading. Some analysts expect that Qualcomm will supply the iPhone 5 with a 28 nanometer chip, so Qualcomm is sure to reap the rewards if Apple's iPhone 5 dominates the market. Historically, the top selling quarter for the iPhone is directly after the newest version has been released. In Q1 and Q2, after the release of the iPhone 4S, Apple sold roughly 72 million phones.
With a one-year return around 8%, beating the approximate 6% return of the S&P 500, Qualcomm is fairly priced at just under $60 a share. This may be a great chance to cash in on some of Apple's success. Further, Qualcomm has returned over 350% in the past 10 years and around 27% in the past three years.
Skyworks Solutions (NASDAQ: SWKS)
Founded in 1962, Skyworks Solutions provides semiconductors for a wide range of devices. Apple is the largest purchaser of semiconductors, purchasing roughly $24 billion in 2011, nearly $10 billion more in semiconductors than Samsung Electronics, which falls in the second place with over $14 billion.
In 2012, Apple is expected to buy around $28 billion worth of semiconductors, a growth of roughly 15% compared to 2011. Skyworks should benefit from this increase as it supplies Apple with semiconductor devices for both iPhone and the iPad.
Trading around $28 per share, Skyworks has returned over 715% in 10 years; 2011 returns were up nearly 10% and up roughly 260% over the past five years.
In the End
If you believe in Apple's future, then the companies above may be a great way to indirectly invest in the company at a lower price point. Not to forget that the companies mentioned deal with many other large corporations, some even supply Apple's competitors as well. Buying shares in these companies can not only be a way to invest in Apple, but to diversify your risk from investing in just one company. Further, if you believe in the growth of the entire smartphone and tablet markets, the above companies may be a great way to benefit from the expansion of the whole industry.
nandini25 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Qualcomm. Motley Fool newsletter services recommend Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.