Apple's iPhone 6 Just Created a Gold Mine, Here's How to Profit

Shares of this small-cap tech stock have soared on the back of the opportunity that Apple just unlocked.

Apr 5, 2014 at 12:00PM

Shares of GT Advanced Technologies (NASDAQOTH:GTATQ) have been on fire. Over the last 12 months, the stock has skyrocketed from just over $3 per share to the most recent close of $18.67, representing a whopping 516% increase. To put that in perspective, $100,000 invested in GT Advanced Technologies about a year ago is now worth $616,170. However, after a deal with Apple (NASDAQ:AAPL) lit up the shares once more, are they now too hot to touch?

What's the deal, man?
Since GT signed an agreement with Apple to dedicate the vast majority of its sapphire furnaces to produce sapphire for Apple, presumably for a next-generation iWatch or iPhone (or both). The company's guidance for the current year stands at a range of $600 million-$800 million, representing 130% year-over-year growth from 2013, and between $0.02 and $0.18 a share in earnings. However, this isn't why the shares have soared in recent months.


Apple's iPhone has made component vendors and their investors very rich over the years. Source: Apple. 

Indeed, as a result of this deal -- and this deal giving GT the wherewithal to invest in other materials businesses outside of sapphire -- the sell side expects GT to post revenues of $1.15 billion during the fiscal year ending in 2015 and earnings of $0.80 a share. That's a lot of iPhone (or iWatch) cover glass!

Shares aren't that expensive
There's a lot of uncertainty here; the sell side expects revenues of between $1.07 billion and $1.33 billion and full-year 2015 EPS of $0.50 to $1.49, with midpoint sitting at $1.15 billion/$0.80, respectively. Now, while the $600 million-$800 million number is "official guidance," we really have no idea what 2014 will look like, although the idea behind these estimates is that:

  • Apple will introduce sapphire cover glass on the iPhone 6, which will drive the demand for sapphire.
  • As the iPhone 6 makes up a larger portion of the mix during calendar 2015, GT should see growth roughly in line with the growth of iPhone 6 as a percentage of Apple's overall iPhone mix.

Apple suppliers eventually get squeezed, but GT likely has room to run
Where the real uncertainty lies -- and what could be upside and downside drivers -- are the following:

  • What are the chances that Apple will require sapphire glass for its oft-rumored iWatch and what kinds of volumes could those potentially drive?
  • How long term is this deal and how susceptible is GT to the longer-term margin compression that all Apple suppliers have inevitably suffered?
  • How well will the iPhone 6 sell? 

That said, the first concern is more about further upside rather than justifying today's price, and the latter concern probably isn't too relevant for the first few years as a newly minted Apple supplier. Indeed, if you'll remember, shares of Cirrus Logic (NASDAQ:CRUS), a chip supplier that derives over 80% of its revenue base from Apple, ran from about $5 a share to about $44 per share before concerns of margin compression took their toll on the chip vendor. It was a good five-year run before the "crash."

Where does it all go from here?
At this point, traditional "valuation" techniques fail because there's such a wide range of outcomes and possibilities vis-a-vis GT and Apple, so what will really drive this stock is news flow and the perception of future earnings. Right now, things look like they're going very well for GT, and unless the iPhone 6 turns out to be an abject flop, which is extremely unlikely, the stock could very well have room to run from here and a price north of $30 could be justified if it has line of sight to about $1.49 per share in earnings as some of the more bullish analysts expect.

Did you miss GT's epic run?
Are you constantly frustrated that you miss big game-changing ideas that are "obvious" in hindsight? Don't you wish you'd picked up some shares of GT Advanced Technologies at $3, $5, or even $10? The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure play" (like GT when it was trading for just $3 a share just one year ago) and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story before it's too late!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. It also owns shares of Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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