Last Friday marked a new milestone for Apple Inc. (Nasdaq: AAPL).
The company released its long-awaited 5G iPhone line, and the launch has been a hit. Apple has already seen its iPhone 12 Pro model sell out after the first weekend.
But that doesn’t mean buying Apple stock is your key to getting rich.
In a September article, I warned readers about holding Apple stock the day before it began a 25% decline.
For investors looking to make gains from the release of Apple’s 5G lineup, buying into one group of stocks may be a better strategy.
A Massive Smartphone Upgrade Cycle
Apple’s 5G iPhone release is setting the stage for a massive smartphone upgrade cycle from 4G.
Consumers have been holding out to buy phones in anticipation of Apple’s first 5G products.
The 5G network is still maturing. But 5G smartphone shipments are expected to soar over the next few years.
The pent-up demand from consumers holding out to upgrade to 5G will lead to a much faster upgrade cycle than we witnessed from 3G to 4G:
(Source: Statista)
There is no question about it: Demand will continue to be high for 5G iPhones.
But we saw the same thing happen when Apple launched its 4G phones. And it didn’t provide a windfall for Apple’s investors like you might’ve expected.
Apple’s Previous Milestone iPhone
After the last major iPhone launch, Apple’s stock price did not perform well. But for the company’s suppliers, it was a different story.
In 2012 Apple made the transition from 3G to 4G with its release of the iPhone 5, which didn’t do much to help its stock price.
During the two years following the iPhone 5 launch, Apple’s stock only gained 2%. Meanwhile, its suppliers Skyworks Solutions Inc. (Nasdaq: SWKS) and Broadcom Inc. (Nasdaq: AVGO) returned 133% and 152%, respectively:
(Source: Bloomberg)
It is easy to see what would have been the better investment during that time period.
This return disparity did not happen by coincidence.
Milestone product launches often have more of an impact on the financial performance of the suppliers rather than the company actually selling the product.
The supplier companies are often smaller and have more to gain as consumers take part in product upgrade cycles.
This was certainly the case after the 4G iPhone launch.
Better Than Apple
During the two years after Apple launched its first 4G-enabled phone, the company only grew its earnings by 1%.
Its suppliers Skyworks and Broadcom grew earnings by 50% and 19% annually during the same time frame.
It looks like a similar scenario is shaping up again.
After the 5G iPhone release, the same suppliers are expected to grow much faster than Apple.
Over the next two years, Skyworks and Broadcom are expected to grow earnings by 31% and 47%, while analysts only expect 16% growth from Apple.
As you can see, the 5G upgrade cycle will move the needle more for suppliers.
Pick-and-Shovel Plays
Buying into an iPhone supplier to capitalize on iPhone sales is an example of a pick-and-shovel play.
Pick-and-shovel stocks are a good way to buy into high-growth opportunities while avoiding crowded trades that every investor knows about.
And next week, during a special webinar, Ian King will reveal how it’s possible to spot small, innovative companies that will lead the way in developing new technologies like 5G, Big Data and artificial intelligence.
In fact, during this presentation, Ian is going to share the details on three stocks that he believes have the potential to hand you 1,000% in the next 12 months.
Click here to sign up for his free webinar.
Regards,
Analyst, Automatic Fortunes
