Please ensure Javascript is enabled for purposes of website accessibility

2 Top Smartphone Stocks to Buy Now -- And 1 to Avoid

By Leo Sun - Feb 7, 2018 at 10:43AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apple and Samsung are smart plays on the smartphone market, but Qualcomm isn’t.

The smartphone market became heavily saturated over the past decade, with worldwide shipments dipping 0.1% to 1.47 billion units in 2017 according to IDC's latest numbers. IDC attributes that slowdown to consumers in developed markets like the US and China postponing upgrades to pricier flagship devices.

IDC analyst Anthony Scarsella noted that "with ultra-high-end flagships all the rage in 2017, many of these new bezel-less wonders proved to be more of a luxury than a necessity among upgraders." He also noted that the "higher price points could be outweighing the benefits of having the latest and greatest device in hand."

A woman checks her smartphone.

Image source: Getty Images.

The sluggish growth of this once-hot market might cause some investors to shun smartphone-related stocks. But if we take a closer look at IDC's market share figures for 2017, we'll notice that the top five smartphone makers in the world -- Samsung (NASDAQOTH: SSNLF), Apple (AAPL 2.45%), Huawei, Oppo, and Xiaomi -- are still posting solid growth.


2017 Shipments

2017 Market Share

Year-Over-Year Growth


317.3 million




215.8 million




153.1 million




111.8 million




92.4 million




577.7 million



Source: IDC.

Samsung and Apple still rule the smartphone market, but China's three biggest smartphone makers are gaining ground. The standout performer of the year was definitely Xiaomi, which mounted a comeback against its Chinese rivals and could launch the biggest tech IPO of 2018.

But since investors can't invest in Xiaomi yet, we should take a closer look at the two top smartphone stocks to buy today -- and one popular supply chain play which you should avoid.

Top stock to buy: Apple

Apple is the most profitable smartphone maker in the world. Last November, Canaccord Genuity analyst Michael Walkley estimated that Apple swallowed 72% of the global smartphone industry's profits during the third quarter of 2017. That's an incredible feat for a company that only controls about 15% of the market.

The reason is simple: Apple is the only smartphone maker that has consistent pricing power in a highly saturated market. A decade ago, the basic model of the first iPhone cost $499 without a contract. Today, the three newest iPhones -- the iPhone 8, iPhone 8 Plus, and iPhone X -- respectively start at $699, $799, and $999.

Apple's iPhone X.

Apple's iPhone X. Image source: Apple.

Revenues from the iPhone accounted for 70% of Apple's top line last quarter. The bears will argue that the company is too heavily dependent on the device, but Apple's prisoner-taking ecosystem ensures that most iPhone users will keep upgrading to new iPhones. A Morgan Stanley survey from last May found that 92% of iPhone users were "somewhat or extremely likely" to upgrade to a new iPhone within the following 12 months.

Apple is also aggressively expanding its Services business -- which include Apple Music, Apple Pay, Apple Care, and other software platforms -- to offset the weight of the iPhone on its top line. That unit's revenue rose 18% annually last quarter and accounted for 10% of Apple's sales. Analysts expect Apple's revenue and earnings to respectively grow 18% and 25% this year, which are high growth figures for a stock which trades at just 13 times forward earnings.

Top stock to buy: Samsung

Samsung claimed just 24% of the smartphone industry's profits during the third quarter according to Canaccord Genuity, but that still makes it one of three OEMs (Huawei being the third one) which actually profit from smartphone sales.

Samsung is the world's biggest smartphone maker because it sells a much wider range of devices than Apple. It's best known for its flagship Galaxy S and Galaxy Note devices, but it also sells mid-range A, C, and J-series devices for budget-conscious consumers and emerging markets.

Samsung's Galaxy S8.

Samsung's Galaxy S8. Image source: Samsung.

Last quarter, revenue from Samsung's IM (IT and Mobile Communications) unit rose 8% annually and accounted for 39% of its top line. Yet its DS (Device Solutions) business, which produces displays, memory chips, and other semiconductors, was the true star, posting 44% sales growth and accounting for 49% of Samsung's top line.

A major growth driver for the DS business was soaring memory prices. However, Samsung also supplies components to other major device makers, including Apple. Apple uses Samsung's memory chips and displays across a large number of its iPads and iPhones, so Apple's growth strengthens its DS division. Counterpoint Technology estimates that Samsung earns about $110 for each iPhone X sold since the device uses its NAND flash memory chip, DRAM chip, and OLED display.

Analysts expect Samsung's revenue and earnings to respectively rise 8% and 16% in fiscal 2018, but the stock trades at just 7 times this year's earnings estimates.

The stock to avoid: Qualcomm

Lastly, mobile chipmaker Qualcomm (QCOM 4.17%) might seem like a great smartphone play since its chips power the vast majority of smartphones worldwide. Moreover, its patent portfolio of wireless patents entitles it to a cut of the sales of every smartphone sold worldwide.

A Snapdragon SoC compared to a penny.

Image source: Qualcomm.

Unfortunately, Qualcomm also faces massive legal and regulatory headwinds which won't dissipate anytime soon. It's been fined by regulators in China, South Korea, Taiwan, and Europe over claims that its licensing fees are too high. Ongoing legal battles with Apple over similar issues resulted in the iPhone maker's suspension of all licensing payments to Qualcomm.

Meanwhile, Qualcomm's best hope for diversifying away from its troubled mobile market -- its planned acquisition of NXP Semiconductors -- remains in limbo as it attempts to fend off a hostile takeover by Broadcom.

As a result, analysts expect Qualcomm's revenue and earnings to respectively fall 4% and 22% this year. Therefore, investors should stick with well-established OEMs like Apple and Samsung instead of betting on besieged suppliers like Qualcomm.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$141.66 (2.45%) $3.39
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$125.10 (4.17%) $5.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.