Supplier gets a piece of Apple's pie

Though AAPL is mum on who its suppliers are for iPad processors, my money is on ARM Holdings.

By Louis Navellier Feb 2, 2010 7:10PM

Louis NavellierWith its iPad tablet computer, Apple (AAPL) has once again proved the power of its strategy:

  • Step 1: Develop cool product ideas at the forefront of technology.
  • Step 2: Keep the gadget under wraps to build up a buzz.
  • Step 3: Unveil it to great fanfare -- and booming sales.

This is a story investors are quite familiar with, and Wall Street does everything but wiretap Steve Jobs' iPhone to get the inside scoop on the next big Apple item. So how do you cash in once AAPL has already made its splash -- as it has with the iPad?


Simple: Find the obscure companies that supply Apple with the parts and production equipment necessary for its latest fad -- companies like Britain's ARM Holdings (ARMH), which is a frontrunner in the microchip business and the most likely supplier of iPad processors.


ARM already develops and licenses microprocessors and is one of the biggest names in tech. More than 210 chip-makers -- including Intel, Samsung, Texas Instruments and Toshiba -- license the company's designs for use in all manner of gadgets. Though AAPL is mum on who its suppliers are for the iPad, my money is on ARM.


Here's why I like ARM:


The perfect size: With a market cap of about $4 billion, the company is big enough to have the scale to compete for the biggest microprocessor contracts but small enough that a windfall deal could really send shares soaring. It's neither an aggressive microcap nor a lumbering blue chip.


Outstanding earnings: Even without AAPL, this tech pick has been flying high. The company has seen stable earnings for each of the past four quarters, including a 17% earnings surprise in its last quarterly report. What's more, earnings have been stable and haven't slipped at all in the past four quarters while some tech companies have seen their bottom line bottom out.


Consumers growing confident: Consumer confidence rose for the third consecutive month in January, marking a 16-month high. As business and consumer spending firms up again, mobile phones, computers and other electronics will begin to sell quickly and the demand for ARMH technology will speed up as well.


With performance like this, you can trust ARMH even if the iPad contracts are just a rumor and not reality.


The same is true for liquid crystal display manufacturer LG Display (LPL). The web is abuzz of this company winning a big contract from Apple for iPad display . Whether or not this is true, I still like LG Display. This stock has shown great earnings momentum, with profits up over 100% from the second quarter to the third quarter. I expect another blowout soon from LPL, and I expect continued growth to lift this stock.


My No. 1 stock for February is Apple -- and now's the time to buy in, because once huge sales of the iPad are recorded, investors will race for a piece of AAPL once more. For more on Apple, and my other "Top Stocks for February," click here.


At the time of this writing, Louis Navellier did not own shares of ARMH or LPL in personal or client portfolios. He did own shares of AAPL.


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