An Apple Play Basket for the New Year

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

I like Apple (NASDAQ: AAPL) for two reasons -- 1. It revolutionized smartphones as we know them, and 2. It opened up new areas for investors to make money (apart from an investment in Apple itself). The company has been under pressure ever since it released the iPhone 5 for some reason or the other, and has seen its year-to-date return decline to a “lowly” 26% as of this writing. But you certainly can’t ignore one bare fact – its products have been selling better than ever.

The latest iPhone opened up to huge demand, even though it didn’t satisfy some analysts, and catapulted Apple to its highest ever market share in the U.S. to 53.3%. Same goes for its recently refreshed iPad and the iPad mini, which bettered previous iPad launches. So what does this tell us? Apple’s products are flying off the shelves and the number of buyers has been on the rise.

Canaccord Genuity analyst Michael Walkley expects the company to sell close to 300 million iDevices in 2013, and this means there is a massive opportunity ahead for investors to make money from numerous component suppliers who make Apple products happen.

Hence, it would make sense to take a look at few of them who could be in for a great year ahead.

  • Cirrus Logic (NASDAQ: CRUS): This is the most definitive Apple play out there. Two-thirds of its top line comes from Cupertino by supplying audio codecs for iDevices. The stock has gained an astounding 75% this year and there are some strong reasons why it should do even better in 2013. The company’s revenue has jumped up sharply to a higher level and its previous outlook calls for yet another strong performance when it comes out with its first report in 2013. In addition, the company’s interests in lighting, energy, and defense could help it generate more revenue in the future, thereby diversifying its revenue streams. Moreover, a relatively cheap valuation is another reason why you could consider gifting yourself some Cirrus shares this New Year.
  • Skyworks Solutions (NASDAQ: SWKS): While Cirrus can be tagged as the aggressive growth stock in an Apple portfolio, Skyworks Solutions would lend more stability to it. The company derives around one-fourth of its revenue from Apple by selling power amplifier modules, and has consistently landed spots inside iDevices. It doubled its content in the latest iPhone and also counts Samsung as an important customer. The stock has gradually tapered off its 52-week high of $31.44 in the past few months, but its year-to-date return still stands at a respectable 22%. Skyworks is well-positioned to benefit from growth in wireless connectivity, and its relationship with both Apple and Samsung is another big plus. Thus, you might consider taking a look at Skyworks Solutions as it currently trades at a forward P/E of just 8 and has a number of growth drivers.
  • OmniVision Technologies (NASDAQ: OVTI): 2012 is the year when OmniVision Technologies finally came of age. The company is witnessing supersonic revenue growth and has also addressed its earnings woes of late. OmniVision’s cutting-edge imaging sensors are found across iDevices, be it the iPhone, the iPad mini, the 4th Generation iPad or the iPod. In addition, its wide range of products satisfies the needs of both high-end and budget phones. Also, growing adoption of tablets would further enhance the company’s prospects. However, as OmniVision is currently ramping up production of its new products, its gross margins remain subdued and that’s one area you need to watch out for. The stock has added just over 11% to investors’ wealth this year, and has fallen off the highs it had set earlier in the year. Considering its solid growth and catalysts, OmniVision makes for an intriguing investment option.

The Underdog

TriQuint Semiconductor (NASDAQ: TQNT), another company that supplies power amplifier modules to Apple, hasn’t had the best of times in 2012. The stock has declined around 3% this year, and holds the unwanted distinction of being the most underperforming Apple play. But I have a strong feeling that this could change in 2013. The company derives 40% of its revenue by selling components for Apple devices, which might sell a record 200 million units this year as stated earlier.

In addition, it also supplies chips to Samsung and counts networking giants Huawei and ZTE on its client rolls, and stands well-positioned to gain from the build out of faster networks. Also, the company’s defense and aerospace business is also gathering momentum as TriQuint recorded some contract wins for this business in the previous quarter. Keeping all these factors in mind, I won’t be surprised if TriQuint reverses its fortunes in the New Year, driven by solid prospects that have led its management to purchase more of its stock.

The Takeaway

If you had gifted yourself this Apple play basket at the end of last year by buying one stock each of Cirrus, Skyworks, OmniVision and TriQuint, an investment of around $49 would have turned into $65. This translates into a handsome return of just over 33%, which is not at all bad considering that the NASDAQ Composite has appreciated a tad above 14% this year.

However, there’s one very important thing to be kept in mind when you are investing in these Apple plays. Negativity around Apple will inevitably pull down these stocks as well, as seen in the past, and positivity will take them higher. Hence, one should be strong enough to endure the massive swings which these stocks engage in at times and hold tight. Moreover, all the stocks mentioned above also have other revenue streams which should help them complement their relationship with Apple in a positive manner over the long-term.

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Cirrus Logic, and TriQuint Semiconductor. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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