Susquehanna Financial Group analysts Chris Caso and Liz Pate picks Apple Inc. (NASDAQ:AAPL) as one of their favorite ideas for 2014, suggesting that the iPhone 6 is the growth catalysts for the year of 2014.
Our favorite names in 2014 include Apple Inc. (NASDAQ:AAPL), the Apple supply chain (QUALCOMM, Inc. (NASDAQ:QCOM), Broadcom Corporation (NASDAQ:BRCM)), and Maxim Integrated Products Inc. (NASDAQ:MXIM). We also see secular catalysts for NXP Semiconductors NV (NASDAQ:NXPI), ON Semiconductor Corp (NASDAQ:ONNN) and Marvell Technology Group Ltd. (NASDAQ:MRVL) ahead as well.
Favorite ideas for 2014
Now that 1Q earnings is complete, our note highlights our favorite ideas for 2014, and discusses the catalysts for each. Our favorite ideas for 2014 include Apple Inc. (NASDAQ:AAPL) and their supply chain (QUALCOMM, Inc. (NASDAQ:QCOM), Broadcom Corporation (NASDAQ:BRCM)), benefiting from both the iPhone 6 ramp later this year as well as a continued LTE ramp at China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941). Within analog, our favorite idea is Maxim Integrated Products Inc. (NASDAQ:MXIM), for which we expect the 2013 Samsung headwind will now become a tailwind, with a call option on incremental Apple business this year.
We also like NXP Semiconductors NV (NASDAQ:NXPI), ON Semiconductor Corp (NASDAQ:ONNN) and Marvell Technology Group Ltd. (NASDAQ:MRVL) – while these stocks have already been strong performers, they remain attractively valued relative to peers, and we see secular catalysts for all three. Finally, we remain most cautious on PC related names, and Intel Corporation (NASDAQ:INTC) in particular given elevated expectations entering the year and recent data suggesting that the PC stabilization that occurred in 4Q may not be sustainable.
Apple’s catalysts this year will include China Mobile, iPhone 6
We continue to think iPhone 6 has the potential to drive an upgrade cycle when Apple Inc. (NASDAQ:AAPL) launches the phone in 2014 (we anticipate an early 3Q launch), due to an expected increase in screen size. In addition, the change in US upgrade policy, which negatively impacted iPhone in 4Q, will begin to subside in 3Q when the policy anniversaries, coincident with the new phone’s launch, which may further spur the upgrade cycle.
We think another potential driver this year is China Mobile. China Mobile is offering the iPhone in just 16 cities with LTE coverage, but this will expand to 340 cities by year-end. We think these factors have the potential to drive strong iPhone demand in 2H14. The risk to our call is that the cost of iPhone 6 is likely to be higher than iPhone 5s due to the larger screen and various other higher cost components (we expect a move to dual-antenna .11ac connectivity, and QCOM’s LTE-Advanced chip), and we think pricing is likely to go up as a result. This is not unprecedented; Apple chose to raise the price point for the iPad mini when they offered it with a retina display.
We don’t think Apple will be afraid to pursue premium pricing for the iPhone 6, and will likely move iPhone 5s down the stack to become more of a mid-level phone.
Catalysts
Catalysts include Mobile World Congress in the handset/tablet space; 1Q earnings reports in April.
