Apple's Surprise Q3 Earnings Could Be Huge for These 6 Stocks

Lee Jackson

This one may be offering aggressive accounts the best entry point in years. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.

In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.

The company ended up finishing the fiscal second quarter with a positive earnings surprise, reporting earnings of $0.80 per share, compared to the $0.70 per share expected by analysts. The company generated $5.23 billion in revenue, compared to $5.19 billion expected by Wall Street.

The company got approximately 18% of its fiscal 2017 revenue from Apple, and the analysts said this in the report:

We expect Qualcomm’s revenue exposure to decline in next-gen handsets due to a potential allocation shift toward Intel. Prior to 2016, The company held 100% market share of discrete baseband processors at Apple. In 2016, Intel made significant inroads to drive Qualcomm’s unit market share closer to 60%, in our estimation. We believe that 2017 iPhones likely saw them claiming a 40% allocation and Intel a 60% allocation. More meaningful going forward, however, continues to be the royalty dynamic between Apple and Qualcomm, which generates both a greater amount of revenue/profit.

Qualcomm investors are paid a large 4.9% dividend. Deutsche Bank’s Hold rating comes with a $55 price target, which compares with the posted consensus target of $66.59. The shares traded at $49.85 Thursday morning.

Analog Devices

This stock could very well benefit from an increase in information technology (IT) spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits (ICs) 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.

Last year the company introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.

Analog Devices got approximately 14% of company revenues from Apple in 2017. The analyst noted this in the report:

Apple was a 14% customer in and a 13% customer in fiscal 2016, though we expect this to decline to the high-single digits range going forward. The company mainly supplies the 3D touch modules in iPhones. We presently model Apple an ~8% customer in fiscal 2018 estimated despite our expectation for lower content in the iPhone X. The 3D touch module historically designed by Analog Devices since 2015 is not in the iPhone X.

Analog Devices investors are paid a 2.17% dividend. The $87 Deutsche Bank price target, as well as a Hold rating, compares with the $103.14 consensus price target. The stock traded recently at $87.05 a share.

Texas Instruments

This is old-school chip tech company has backed down from highs posted in January and is also offering a great entry point. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators.

Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets. The company did approximately 9% of fiscal 2017 revenues with Apple, and the analysts said this in the report:

The company’s exposure to Apple has historically been described as across hundreds of parts and evenly spread out between their devices (we note that Apple’s revenue mix is ~60% iPhone, ~10% each for Mac, iPad, Services, ~5% other). Thus, we think that Texas Instruments exposure to iPhones in particular could be ~5% of total sales. In 2016 and 2017, Apple was not disclosed as a 10% customer, while the company was a 11% customer for TI in 2015.

Shareholders of Texas Instruments are paid a 2.41% dividend. Here too, the Deutsche Bank rating is Hold, and it comes with a price objective of $107. The consensus price target for the shares is $119.16, and the shares were last seen trading at $101.35 apiece.