Breaking news…
You’re doing it all wrong.
The way to make a lot of money from big technology trends is often not by investing in the well-known, heavyweight companies that grab all the headlines with the flashiest new products.
You know… like Apple (NASDAQ:AAPL), Samsung (KS:005930), Sony (NYSE:SNE), etc.
I’m not saying they’re bad investments, necessarily… It’s just that when it comes to making the most from unstoppable new tech trends, there are better stocks out there.
Namely, the innovative, smaller-cap companies, quietly working behind the scenes with these big boys to bring hot, new technology to market.
Like these three lesser-known pioneers… two of which have already teamed up with Apple to provide the essential technology that will help it launch the next wave of blockbuster products.
Apple Product Play #1: Picture Perfect Profits
Back in March, I told Wall Street Daily readers to “buy the future” and invest in Pixelworks (NASDAQ:PXLW) – a little-known semiconductor firm based in San Jose, California. Why?
The “perfect television.”
In one of Steve Jobs’ final interviews, he revealed to his autobiographer, Walter Isaacson, that he’d “cracked the code” on making the perfect television. It confirmed speculation that Apple would be expanding into the home entertainment arena.
At the end of 2013, current Apple CEO, Tim Cook, reiterated Jobs’ vision when he said that Apple would be “breaking into new product categories in 2014.”
Translation: An all-encompassing Apple TV – dubbed iTV.
But Apple can’t achieve this by itself. And that’s where Pixelworks comes in…
In its 2013 10-K filing, Pixelworks revealed that it had an established relationship with Apple. The news confirmed the speculation until that point… but Pixelworks didn’t legally need to disclose the partnership until Apple had accounted for 10% of its revenue. Apple surpassed that benchmark in 2013, accounting for 17% of Pixelworks’ business.
At the time, Pixelworks shares were trading at $5.36. On Wednesday last week, after research firm, 3D Analytics, all but confirmed iTV rumors, shares soared to a 52-week high of $9.19 on a gigantic surge in trading. Volume hit almost 10.8 million shares, compared with average daily volume around 953,000.
It puts Pixelworks up 52% since I profiled the company.
Pixelworks’ first-quarter earnings report showed that Apple accounted for 14% of the company’s quarterly revenue. As a result, 3D slapped a $22 price target on the graphics chipmaker.
In my opinion, that’s a very conservative number. But since that would be a 168% gain from current levels, don’t expect that to happen overnight.
What I do expect, however, is for upward momentum to continue… but with some cooling-off periods along the way. So if you missed my original write-up on Pixelworks, use any dip as a buying opportunity.
Apple Product Play #2: Mobile’s Midas “Touch”
According to Jeffrey Schreiner of investment banking firm, Feltl, there’s a 50-50 chance that Apple’s next-generation iPhones, along with its iPads (the iPad 4 and iPad Mini 3), will feature haptic technology in their touchscreen displays.
Get off that fence, Jeffrey!
I’d say the chances are significantly higher than 50-50, given the popularity of this technology among consumers and how it enhances the experience.
To refresh your memory, haptics is basically the vibrating force feedback you get when you execute a command. It’s already hugely popular in gaming and mobile technology, but adding it to iPhone screens would represent the next level.
And the most likely supplier of that feedback?
None other than Immersion Corporation (NASDAQ:IMMR) – the very first 85-pointer I profiled in C.H.A.O.S. on May 10. And shares are up 30% since then.
In fact, Immersion’s TouchSense technology is already inside over 550 million mobile devices, with an addressable market upwards of four billion. Hardly surprising when you consider the multi-billion-dollar industries that employ the technology – including healthcare and automotive, in addition to mobile and gaming.
There’s outstanding potential here, for sure. But keep in mind that this rumor has floated around for some time now – and hasn’t yet come to pass.
So understand that a “play the news” angle here might take a while to “play” out.
That said, here’s why I believe this is finally about to come to fruition…
In a word: China.
Apple is fed up of not being the “Apple of China.” Instead, that honor goes to Xiaomi, which is eating Apple’s lunch in China… and coming back for seconds!
The company sold 26 million smartphones in the first half of 2014 – a whopping 271% jump from the same period in 2013. That equated to $5.3 billion in revenue, and puts Xiaomi way ahead of Apple in terms of sales.
The main reason for Xiaomi’s success is its ability to provide features similar to those of the iPhone… but at a much lower cost to budget-conscious Chinese consumers.
But crucially, Xiaomi also has Immersion on board, providing haptic technology in some of its phones.
This gives Xiaomi another leg up over Apple in China – and is a compelling reason for Apple to get a similar arrangement in place with Immersion.
Incorporating Immersion’s state-of-the-art TouchSense haptic feedback to the iPhone would give Apple a major additional feature – and make Immersion extraordinarily valuable to Apple.
But outside of Apple, there are other reasons why Immersion represents a terrific investment. For example, it continues to lock up major deals – like the multi-year licensing contract it just agreed to with Huawei Technologies. This is yet more validation for Immersion’s technology and the growing popularity of haptics in the mobile space.
Given the speculative nature of this “play the news” angle, I’d consider the August 2014 $20 call options.
Apple Product Play #3: Sacred Sapphire
I first profiled GT Advanced Technologies (NASDAQ:GTAT) back in November 2013, when shares were trading at $9.79.
Today, the stock has risen to $16.20 and hit a 52-week high of $20.54 on July 2. The reason for the rise?
The firm’s burgeoning relationship with Apple.
GT manufactures synthetic, man-made sapphire – an incredibly strong (virtually unbreakable, in fact) and scratch-resistant material.
Which makes it perfect for mobile phone screens. Much better than Corning’s (NYSE:GLW) Gorilla Glass, which is currently used in iPhones.
Apple thinks so, too… which is why the two companies struck a $578-million deal to run the world’s only round-the-clock, 1.3-million-square-foot sapphire-production facility in Mesa, Arizona.
Since hitting that high on July 2, however, GTAT shares have tumbled by 21%. The reason?
Two analysts covering the stock – Jonathan Dorsheimer at UBS and Canaccord’s Stephen Chin – both downgraded it from “Buy” to “Hold.”
So should you be concerned? Absolutely not.
As I said, with any technology-focused investment, you need to buy the future. And given sapphire’s incredible properties, the partnership between GT and Apple is the future of mobile screens.
At the moment, however, it’s very expensive to manufacture.
But Apple’s investment in sapphire is a bet on the future. And it’s working tirelessly with GT in Mesa to drive down production costs.
They’re getting there, too. In fact, this video may well be the next-generation sapphire screen on the iPhone 6, launching this autumn…
While the recent decline in GTAT shares can turn even the most cast-iron stomachs, it’s important to note that the analyst downgrades are focused on the “here and now,” specific to the company’s finances.
Put simply, GT has used a lot of cash to make sapphire screens the new standard in mobile phones.
But don’t take such a near-term view. Rather, look at the long-term picture. Sapphire is the future of touchscreen technology. The synthetic sapphire market is expected to double to $35 billion by 2018 – and once sapphire screens hit the market, GT investors will be paid in spades. Sapphire-coated spades.
Your eyes in the Pipeline,
BY Marty Biancuzzo