Saying that Apple (Nasdaq: AAPL) is tight-lipped about impending hardware announcements is an understatement. However, that hasn’t stopped the rumor mill from kicking into high gear as the end of the summer approaches.
Other offerings expected to make a debut (either this year or early next) include a thinner and/or larger iPhone iteration, an iWatch, and an updated version of the iPad. The exact names and specs of each of these seems to change with the tides, but Apple fanatics and analysts have long looked to one area to discern exact details about future releases -- Apple’s suppliers.
My colleague Marshall Hargrave already let you in on one Apple supplier that’s made a home in some big-name investors’ portfolios. The Cupertino, California-based giant has a few more tricks up its supply-chain sleeve however, and the market has high hopes for the two companies I’ve uncovered going into Apple’s next hardware reveal.
GT Advanced Technologies (Nasdaq: GTAT)
GT makes advanced materials for consumer products. Apple has chosen the company to produce the Sapphire displays used for the iPhone 6 and iWatch, according to the most recent reports.
Sapphire glass, which is touted as nearly indestructible and virtually scratchproof, is currently used on the iPhone 5's home button and camera cover. Apple spent $578 million on a deal with GTAT last year to speed up the development of Sapphire displays, hinting at their use in the next-gen iPhone. The company used the money to build a production facility to further increase output.
GTAT may be hitting supply constraints, however, meaning that the iPhone 6 may only have Sapphire on one side (or worse, not at all). There is also speculation that Sapphire will only be on the iWatch, slated to come out at the end of this year. Delays and the use of poor raw materials (leading to a weaker product) are also causes for concern.
As such, sell-side analysts from firms like UBS and Canaccord think the stock is overheated, reducing their ratings from "buy" to "hold." However, Canaccord still maintains a $20 price target for GTAT, representing upside of 34% from current levels and a possible buying opportunity.
The important thing to remember is that Apple has not officially endorsed the use of Sapphire in its upcoming displays. If the company reveals its lack of support of the technology, GTAT could likely head into a freefall.
Skyworks Solutions (Nasdaq: SWKS)
As my colleague John Morgan noted recently, Skyworks is at the leading edge of the "Internet of Things." It's also another company seeing wide recognition from Apple’s followers, as it is a leading supplier of radio frequency chips to many smartphone makers. The company’s chips are expected to be a key component in the iPhone 6.
Skyworks also benefits from its strong ties to the mobile industry as a whole, not relying solely on Apple as a consumer of its products. It counts Samsung, Nokia, LG, and Cisco Systems as clients, and it also caters to the automotive, medical and energy industries, among others.
Apple is expected to grow its market share in China even more so with its new hardware line, which naturally has positive implications for SWKS. However, Skyworks also supplies components to other tech giants that hold even larger market shares in China (such as Lenovo and Samsung). Increased mobile demand, regardless of mobile provider, could keep Skyworks flying high.
Unlike GTAT, Skyworks has had next to no reversion in its share price, appreciating more and more after each plateau. The stock is up over 80% this year, gaining 13% in July alone thanks to a strong earnings beat and even stronger guidance. As an added bonus, Skyworks recently instituted a quarterly dividend, giving SWKS a modest 0.9% yield.
Risks to Consider: While the saying “buy the rumor, sell the news” has been an investing mantra for decades, countless investors have chased hyped stocks and been whiplashed by volatility or have bought the top before disappointing announcements.
Action to Take --> Both GTAT and SWKS are important links in Apple’s supply chain and should continue to benefit immensely from the tech giant’s support. A successful hardware launch this year could mean big profits for these suppliers.
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