This article was originally published in late January — Andy Obermueller is teasing Apple suppliers again, hinting that the Apple “Growth Window” will close up on September 30 (presumably when we start freaking out about their next wave of iPhones and iPads, usually introduced around then), and the descriptions of the teased stocks that he likes are still pretty much identical, as is the general “Apple Pay” push, so we’re republishing the answers and explanations below.
The stocks are generally up since the beginning of the year, with the exception of SNDK, and the “sexier” suppliers (AVGO, NXPI, SWKS) are up quite dramatically — Qorvo has also become established as a new company since then and is clearly still being teased (QRVO is the combination RF Micro and Triquint), and Obermueller makes no mention of the Avago/Broadcom combination that was announced just a few days ago but still teases AVGO. What follows has not been updated, edited or revised since it was first published on January 23.
Apple is my largest personal equity holding, and that makes me a little bit worried again now about short-term jumpiness — it’s not an expensive stock, to be sure, but it is huge and often trades with wild volatility unbecoming a megacap dividend growth stock…
… and, perhaps more worrisome, I’ve had my first post-Steve-Jobs moment when I mourned the “old Apple.” I had it just a week or two ago, when Mrs. Gumshoe upgraded to the iPhone 6 (the regular one, not the behemoth Plus)… and I wasn’t jealous.
Now sure, I may end up upgrading to a new phone someday before too long… but I agree with Steve Jobs, the phone should fit nicely in your hand and be usable with one hand. I have big hands, I’m well over six feet tall and haven’t been below 200 pounds since high school, I’m used to being big… and I think her phone is too big for me.
I’m not selling Apple, of course, partly because I seem to be out of touch with the vast multitudes who prefer larger screens (everyone seems convinced that Apple is likely to announce having sold record numbers of iPhones again when they report next week), but I did hedge my bets with some cheap put options that may moderate my losses in case iPhone sales or margins are a bit weaker than the lofty expectations.
But more to the point, with Apple reporting what will probably be their biggest quarter ever next week, I thought we should take a look at the latest Andy Obermueller teaser pitch for the “New Apple Innovation” and the “#1 Apple Supplier to Buy Now.”
So what is it? We’ll let the ad copywriters whet your appetite:
“Apple has quietly released an innovation that will disrupt one of the world’s most powerful—and profitable—industries.
“Here’s everything you need to know, plus 11 companies that could hand investors bigger profits than Apple….
“Apple is about to change the world as we know it… again. And this next Apple revolution will alter all of our daily lives forever.
“While the popular media has been distracted by the next gadget that Apple will reveal—like the iPad, the Apple Watch, and the next generation iPhone—they’re overlooking the real game-changer that Apple quietly released.
“Like all of Apple’s industry disruptions—from the home computer industry to the music industry to the telephone industry—this event will be extremely profitable for some investors.
“But Apple investors aren’t going to be the ones who profit the most.”
So it seems that we’re faced with another “Apple supplier” teaser pitch, a hook that’s been used to sell newsletters ever since Synaptics (SYNA) boomed when it was touted as the supplier for the click wheel on early iPods a decade ago. We see these a lot, from touts about the latest screens (Gorilla Glass from Corning) to the latest radios or other processors (Qualcomm or Skyworks Solutions or ARM Holdings) or the motion sensors or gyroscopes (Invensense or STMicroelectronics) or near field communication chips (NXP Semiconductor) or even the power amplifiers (Triquint Semiconductor)…. and I must be missing quite a few. I’m pretty sure all of those have been teased and touted over the past five or six years, and we’ve written, at least in passing, about most of them.
There’s a reason why everyone waits breathlessly as each new iPhone model is torn down right after release, wanting to see if their favorite little semiconductor firm has “won” a space inside that secretively-designed little machine. The companies sometimes end up regretting their Apple connection in their weaker moments, I suspect, much like small product developers sometimes regret getting that coveted OK from the Walmart buyers, because no one crushes the margins of their suppliers like Apple and Walmart do… but still, the promised potential of that huge volume and high profile presence in the hottest consumer product (or the largest retailer) is pretty much impossible to resist. And sometimes (Skyworks Solutions, for example) it works out really well for investors for an extended period of time.
And what is this next hot innovation? Apple Pay, Apple’s new system — built into the iPhone 6 and the Apple Watch — that lets you store credit card info in your phone and authorize payments using just a wave of your watch or phone at the cash register. I have to admit, this is one thing that I would jump on as a great convenience… if it really catches on and lots of retailers and banks sign on and install Apple Pay-ready checkout systems and authorize their credit and debit cards for use in the system (my small local bank hasn’t yet, nor have many retailers, large or small, in my neck of the woods here in Western Massachusetts).
The potential is certainly there for a “better” way to pay, a better wallet built into the cell phone or the key fob, and it’s been tantalizingly teased since well before the first iPhone. One of my fondest memories of visiting Disney World with the little Gumshoes last year was the “magic band” they give you — the size of a watch, it’s your park entrance ticket, your hotel room key, your credit card to buy lunch and trinkets, your ride ticket, and you don’t have to carry anything else. I should have bought Disney stock after that visit, which made me wish Disney could take over the DMV and the airport and even, please God, Walmart… but without regrets we’d all be insufferable.
I’ve gotten off track again. More from the ad:
“With Apple Pay, for instance, all you do is push down on a built-in fingerprint scanner as you hold your iPhone next to the cash register at your favorite store.
“And instead of transferring your personal information, this service sends a different set of numbers called a token, which is worthless to criminals.Are you getting our free Daily Update
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“So even if they somehow hack a system, all they’ll get are a bunch of meaningless numbers.
“It’s that easy to use and that secure.
“And the timing is right for Apple Pay to radically change the way we pay for everything… by making credit cards obsolete over just the next few years.”
The idea, we’re told, is that Apple is muscling it’s way into the payments space because the volumes are so huge, and so dramatic, that even a teensy weensy little fee that they might be able to codge out of the banks and credit cared companies and retailers would amount to meaningful revenue for them… and of course, if they do it better than everyone else then even more people will be even more committed to sticking with Apple for their future phone needs.
“Put simply, Apple’s profit margin—the percentage of revenue it has left after it pays out most of its expenses—is about 22% right now. That’s very good.
“Now take a look at MasterCard and Visa’s profit margins.
“MasterCard’s profit margin, which stands at nearly 38%, is head and shoulders above Apple’s.
“And Visa’s is more than double Apple’s profit margin at nearly 45%.”
That’s probably not a meaningful comparison, of course — Apple already has fantastic margins, though they’re under some pressure and they’d probably like to boost them by a hair with more employee-light revenue… but it’s hard to believe that Apple trying to make big news in the payments business would come at high margins, at least in the first several years. They’re not going to get the higher fees that Visa and Mastercard do, since they’ll still need to use Visa and Mastercard (oligopolies do not die easily), and Apple already generates much higher sales per employee than Visa or Mastercard do and will need, one assumes, to have employees who can push and sell Apple Pay — particularly to banks and retailers, who are the key partners they need to convince.
So who are these suppliers who will get rich as Apple Pay balloons, per Obermueller? Here’s more from the ad:
“I’m going to give you the names and ticker symbols of 6 Apple partners that stand to be big winners as this epic transformation unfolds…
“And I’m also going to introduce you to the one tiny Apple supplier that holds the ke