Smart plays on smartphonesApril 23, 2013: 9:45 AM ET
This article was published in the May issue of Money magazine.
You don't need Siri to tell you that mobile technology is just getting started.
Shipments of smartphones are forecast to surge 65% and tablets are expected to nearly double by 2017, led by strong growth in China, India, and Brazil, according to research firm IDC. Meanwhile, rumors abound of bendable screens and eye-scrolling technology just around the corner.
So what's the best way to capitalize on this promising trend?
Pick Apple ...
Until last fall Apple (AAPL) was synonymous with mobile, and its price reflected that.
Shares hit an all-time high in September but have plunged nearly 45% since then (they're down 25% since I recommended the stock in January). Investors fear the iPhone maker may not have another hot product in its pipeline.
Related: Apple's latest earnings
This is an overreaction. Rob Majteles, managing partner at Treehouse Capital, says slowing growth concerns are more than factored into the stock, which trades at a low price/earnings ratio of 9, based on estimated earnings. The shares also yield 2.7%. And since Apple sits on $137 billion in cash, an increased dividend payout seems likely. "I'd buy a high-quality company like Apple at this valuation any day of the week," Majteles says.
… Or play the field
Of course, an even safer strategy would be to spread your bets.
Not sure which phonemaker will ultimately win the market share wars? Invest in a cross-section via First Trust NASDAQ CEA Smartphone Index ETF (FONE). In addition to Apple, the fund owns shares of Android leaders Samsung and HTC, as well as Nokia (NOK) and BlackBerry (BBRY).
Another option: Growth-oriented investors can seek out undervalued shares of companies that sell vital parts to multiple phonemakers.
Morris Mark, president of Mark Asset Management, owns wireless chipset developer Qualcomm (QCOM), whose technology is used in virtually all leading smartphones. About a third of the firm's sales come from licensing royalties, giving it a lucrative revenue stream for the next decade. Charlie Smith, chief investment officer at Fort Pitt Capital, likes SanDisk (SNDK). The flash-memory-card maker has transitioned from the price-sensitive consumer market to supplying manufacturers like Apple and Samsung directly.
Finally, an agnostic play on mobile, with appeal to income investors, is through the wireless networks that stand to benefit from increased data usage as smartphones proliferate worldwide. The top holdings in iShares S&P Global Telecommunications ETF (IXP) are U.S. carriers AT&T (T) and Verizon (VZ), whose shares each yield about 4%. The fund also owns leading international carriers such as China Mobile (CHL) and Mexico's America Movil (AMX).