The Rise of Smartphones and How to Profit from Them
They’re everywhere! No, I’m not referring to Chuck Taylors, I’m referring to smartphones like the iPhone, Galaxy S and Blackberries, among others. Nowadays, most people have one, and those who don’t, want to have one eventually. The demand for smartphones is ever increasing probably because it is slowly replacing functions that were once only available to personal computers. People are not using them to just make calls or texts anymore, they’re now being used to surf the internet, to watch videos, to listen to music, to chat with friends, to take pictures, to play games, and a whole lot more!
According to market research firm IDC, global smartphone shipment volumes in 2011 were up 61.3% thanks to Apple’s iPhone 4S and the Samsung Galaxy SII. Data for the 4th quarter of 2011 reveals that Apple and Samsung sold 37 million and 36 million units respectively, effectively capturing 46.3% of the global smartphone market. IDC also said that it “fully expects continued double-digit growth for smartphone sales in the foreseeable future.”
A Growing Industry is a Goldmine
An industry that is growing like that definitely has great profit potential for both companies and investors. In the following section, I’d like to point out a few companies that will definitely be benefiting from the smartphone boom so that you can build up your list of potential stocks to buy. Keep in mind that I will only be focusing on leading companies that are growing their annual revenues by double digit figures, so I’ll leave out Nokia (NOK) and Research in Motion (RIMM) for now.
Apple Inc. (AAPL) is the maker of the revolutionary iPhone. For Fiscal Year 2011, they sold a whopping $47 billion worth of iPhones, an almost 87% increase from the year ago. Apple and Samsung capture much of the market share for smartphones, so if you want to invest in a smartphone “pure play”, Apple would be top of mind. Here is a related WealthLift Insider article which analyzes the company in detail.
Samsung would’ve been a great candidate for our list, however, the South Korean multinational conglomerate doesn’t have an ADR that trades in the US market, so I’ll skip to the next.
ARM Holdings plc (ARMH) is a UK based company that manufactures the microprocessors used in Apple Inc.’s iPhones and iPods. The basic assumption here is: if Apple sells more and more iPhones and iPods, the more processors ARM will also sell. It currently looks pricey at a P/E and PE/G ratio of 65 and 2.09 respectively, but keep in mind that its closest competitor has a P/E of 102.88. It will definitely pay to keep an eye on this stock, just in case a buying opportunity comes up.
Qualcomm Inc. (QCOM) supplies the CDMA chips found in the iPhone4 and 4S, as well as in almost all android smartphones. Net income has grown steadily over the past three years and analysts expect it to grow at 15.48% for the next five years, as compared to the industry’s 12.77%. The stock is currently trading at a P/E of 19.3 and a PE/G of 1.10. With the upcoming shift to 4G mobile technology, QCOM stands to grow profits because of the patents that it holds pertaining to the said technology.
SanDisk Corp. (SNDK) manufactures the flash memory that comes with most smartphones. I think it is a better buy compared to its rival, Micron Technology Inc. (MU), because (unlike MU) SNDK is expected to actually grow earnings next year. Sandisk is expected to grow at 15.10% in the next five years, as compared with the industry’s 16.37%. The stock is currently trading at a P/E of 10.5 and has a PE/G ratio of 1.23.
First Trust NASDAQ CEA Smartphone Index Fund (FONE) is an Exchange Traded Fund (ETF) that invests in a basket of smartphone stocks, both in the US and abroad. This is probably the easiest way to put your bet on the growing smartphone industry, but you can’t expect it to move like Apple’s stock because of its diversification.
The companies I featured above will definitely benefit further from the smartphone boom. Add them to your buy list, but be sure to make additional research so that you’ll know if they are selling for bargains or not. Good luck and happy investing!