A hot iPhone stock that isn't Apple

If you're looking for another way to play the new phone, take a look at the company behind Siri.

By Jim J. Jubak Sep 11, 2012 5:33PM

Businessman in car with smartphone © Image Source, Image Source, Getty Images

You can hear investors holding their breath ahead of Apple's (AAPL) introduction of its new iPhone Wednesday.

In contrast to Monday, when shares of Apple fell 2.6% as investors sold ahead of the news, Tuesday Apple shares are going nowhere. The stock closed down a miniscule 0.32%.

I think fear and greed are about evenly balanced as we go into the introduction. The fear is that the new iPhone won't live up to previous product launches. Greed is based on Wall Street projections that the company could sell as many as 10 million iPhones by the end of September. (By comparison, it took Samsung 50 days to sell 10 million of its Galaxy S III phones.)

Lots of other companies have big bucks riding on the iPhone -- Sony (SNE) made the camera, for example, and Qualcomm (QCOM) the processor. But most of those suppliers are themselves so big that the iPhone effect on their shares will be fairly muted.

If you're looking for another way to play the iPhone besides Apple, I'd suggest Nuance Communications (NUAN), the company behind the iPhone’s Siri digital assistant. Nuance (market capitalization $7.64 billion) is especially interesting Tuesday because on the eve of the iPhone launch the company announced a digital voice assistant, Dragon, for Intel Ultrabooks. Intel (INTC) demonstrated the beta of the software Tuesday at the Intel Developer Forum in San Francisco. And Ultrabooks with the application will start to ship in the fourth quarter of 2012.

It’s hard to put a target price on Nuance Communications because the company is at that awkward stage where revenues are growing fast as wildfire but earnings are wildly erratic. For the company’s fourth quarter, which ends on September 30, 2012, Wall Street currently estimates revenue growth of 34%. Five year average annual revenue growth is 28%.

But earnings, which were 25 cents a share in the third quarter but 0 cents in the second quarter and just 3 cents in the first quarter, are projected to grow by just 10% to 34 cents a share from the 31 cents a share earned in the fourth quarter of 2011. But even that’s not very certain since the company delivered an 11% positive earnings surprise in the third quarter and a 19% positive surprise in the second quarter.

But I think the stock is an interesting short-term trade. In recent quarters Nuance has bounced on good news from Apple. And I think that’s a likely result Tuesday too. Apple's event is

scheduled to start at 10 a.m. Pacific time.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Apple as of the end of March. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

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