Apple (NASDAQ:AAPL) is expected to launch its next iPhone flagship in coming in two-three months, which has in turn increased the surrogate trading in the shares of Taiwanese suppliers of Apple component, according to Reuters. Investors are eager to reap the benefits of the bullish sentiments over the Apple stock, which is spurring the supplier company’s stocks along with itself.
Apple suppliers trading high
Largan Precision, a camera module maker for Apple is trading at record levels. Reason that has triggered the high volume is relatively cheap valuation, extra profit the company is getting by replicating the iPhone features for other smartphone makers.
Although Taiwanese stock exchange is 10% higher, it is still trading on an average 16 times earnings compared to Nikkei index, which dropped 5% and still trades at a price-earning’s ratio of 19.
Largan is expected to post twice the earnings this year, and its stock has increased 57% since April, outperforming the Apple’s stock growth of 20%. Largan’s market capitalization of $10.7 billion is way less than Apple Inc.’s $567 billion.
Other component manufacturers are Taiwan Semiconductor Manufacturing co Ltd, who is the world’s top contract chipmaker, and another company is Hon Hai Precision. Taiwan Semiconductor makes the next generation A8 chips and Hon Hai assembles iPhone.
More returns and less riskier than Apple
The common belief is that these stocks would grow at a faster pace than Apple Inc, if the iPhone 6 captures the market. Also, the side-effect of any disappointing sales of the iPhone 6 would not blow off the component stocks as the component is supplied to other smartphone companies, as well.
Edward Chao, fund manager of Jih Sun Securities Investment Trust in Taipei noted that investors are eager to see if the Apple iPhone success matches with the expectations and if it does then shares will surge high later this year.
John Chiu, chief investment officer of Fuh Hwa Securities Investment Trust in Taiwan said, “From foreign investors’ point of view, Apple is a very big stock, and that limits the upside potential for earnings growth and share prices.” The analyst added, comparatively the component suppliers are smaller and so their growth potential is bigger. Also, these stocks will most probably be assigned new ratings if the Apple product becomes successful.
