For years Apple Inc. (NASDAQ: AAPL) was the 800-pound gorilla that could not be stopped. Demand for each product recycle was strong, and people would wait for hours to get and see the new iPhone, and then iPads and finally Apple Watches. While there is considerably more excitement around the iPhone 7 and 7 Plus this time as opposed to product refreshes in recent years, there are also some companies that are involved in the supply chain this time around poised to do very well.
A new RBC research report makes the case that the new products should be positive for Apple, and they should increase demand and unit sell through, which in turn should be a boost to the entire ecosystem. The report focuses on the companies that have the biggest exposure to the supply chain, and here we focus on five that look like solid investments now.
This is the top pick in the sector and has remained a favorite at RBC for some time. Amphenol Corp. (NYSE: APH) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.
Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The company has a diversified presence as a leader in high-growth areas of the interconnect market, including: automotive, broadband communications, commercial aerospace, industrial, information technology and data communications, military, mobile devices and mobile networks.
The RBC report notes the following:
Amphenol has 8–11% exposure to Apple, mainly in iPhone and iPad antenna and connectors. We estimate that unit allocation to the company for iPhones is ~30% and allocation for iPads is ~50%.
Amphenol shareholders receive a 0.90% dividend. The Wall Street consensus price target for the stock is $63.55. Shares closed Thursday at $62.89.
This stock is still trading way below levels printed last year. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
The company has faced some selling pressure as its exposure to Apple remains intact, as it supplies the processors that enable 3D Touch in Apple products. Analog Devices is reported to be the sole supplier for the 3D touch processor to Apple.
RBC team added:
We estimate 37% quarter over quarter growth to $254 million for the October quarter. Beyond the Force Touch processor, we believe that Analog Devices has also won a processor for the camera module(s) in next-generation iPhones. We estimate that content gains could be ~30%/iPhone vs. the iPhone 6S/6S+.
Investors receive a 2.75% dividend. The consensus price target is $73.15, and the stock closed most recently at $61.41.
This combined entity was formerly known as Avago and Broadcom. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Its extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other.
Applications for the company’s products in these end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company produces radio frequency (RF) front-end for LTE-enabled Apple products. RBC estimates that the company has 15% to 18% exposure with Apple through its wireless segment. The firm also said this in its report:
We estimate that RF content is presently ~$6/phone while combo chip content is close to ~$4/phone. In next-generation iPhones, we expect RF content to grow to $8–9/phone (20%+ year over year) while combo chip average selling prices could grow materially when 802.11ax technology is incorporated. We expect above Apple unit growth from Broadcom’s wireless business in the second half of calendar year 2016 as a result of more RF content in iPhones.
Broadcom shareholders receive a 1.21% dividend. The consensus price target is $202.34. The shares closed at $168.38.
This is another company that does significant business with Cisco. Jabil Circuit Inc. (NYSE: JBL) is the ultimate outsourcing stock for technology and more. The company offers electronics and mechanical design, production, product management and aftermarket services to companies in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, solar, storage and telecommunications industries.
RBC estimates the company gets a stunning 24% revenue exposure from Apple in iPhone and iPad casings. It also estimates that Jabil Circuit has about a 30% allocation of casings for both iPhones and iPads and added this is the report:
Jabil guided for its DMS segment to grow to $1.5 billion in the August quarter-20% year over year and +6% quarter over quarter. For the November quarter, we model 69% quarter over quarter growth to $2.6B (+4% year over year) as its Apple business ramps.
Investors are paid a 1.47% dividend. While the consensus price target is $21.10, shares closed higher than that on Thursday at $21.58.
This long-time innovator in the storage industry is a leader in the total addressable hard disk drive (HDD) market, and it posted a very positive earnings pre-announcement earlier this week. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.
Western Digital is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.
The most compelling news is that the company made a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to Western Digital’s current offerings, and the company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.
RBC estimates Western Digital has 4% to 6% revenue exposure to Apple mostly in NAND. The firm added this in the report:
We note that SanDisk had ~15–20% exposure to Apple over the last few years. Apple announced storage tiers in the iPhone 7/7+ at 32GB/128GB/256GB, doubling storage capacity year over year Apple also decided to double storage for the older-generation iPhone 6S/6S+ to 32GB/128GB (no 256GB tier, it appears), which should provide a further tailwind for the NAND market appears to be in tight supply.
Western Digital shareholders receive a 3.75% dividend. The consensus price target is $61.67. Shares closed at $53.47.
With most analysts on Wall Street positive on the newest iPhone and the market ready for some of the announced enhancements, solid sales should drive business to these top companies. All make good sense in more aggressive growth portfolios.