Apple, Inc. (AAPL) has a huge cash hoard and with the company now generating billions of dollars each quarter, the cash on the balance sheet continues to grow. Apple has so much cash, that some analysts have noted it could bail-out Greece. As most investors know, cash in short-term investments generates very little in the way of returns, usually much less than 1% per year. Some investors have been pushing for Apple to find ways to use this cash to more effectively create value for shareholders. The company could buy back its own stock, it could pay a dividend to shareholders, or it could acquire other companies. In fact, Apple has so much cash on the balance sheet now (about $100 billion), that it could easily afford to do all three of those options and it would still have plenty of cash. If Apple were to acquire another company, the most sensible option could be to buy one of its existing suppliers. Buying a key supplier could enable able Apple to better control its supply chain and it could also generate much higher returns compared to what cash balances typically earn. Here are a number of companies that are solid companies with growth potential if they remain independent but also could be smart takeover targets for Apple:
Corning Inc., (GLW) is a leading manufacturer of glass products. Corning makes a product called "Gorilla Glass" which is used on flat screen televisions and some of the most popular tablet computers and mobile phone devices. Corning is so cheap now, its stock is trading below book value of $13.79 per share. It trades for only about 7 times earnings, so it could be one of the cheapest tech stocks around. The company plans to launch "Gorilla Glass 2.0" which could help boost demand and profit margins for the company. Since Corning makes the specialty glass used on iPads and iPhones, it could make sense for Apple to buy the company. Apple could buy Corning easily and lock in supplies for the future, plus get a great tech company at a bargain price. This company has a market capitalization value of about $20 billion.
Here are some key points for GLW:
- Current share price: $12.64
- The 52 week range is $11.51 to $23.43
- Earnings estimates for 2011: $1.68 per share
- Earnings estimates for 2012: $1.72 per share
- Annual dividend: 30 cents per share which yields 2.1%
Broadcom Corporation (BRCM) is a leading maker of technology products including specialized semiconductor chips primarily used in mobile and other communications devices. Broadcom chips are used in some of Apple's most popular products including the iPhone. This stock is trading at a very reasonable price to earnings ratio of only 12. Thanks to a strong balance sheet, this is a lower risk way to play the technology sector and the dividend will pay you to wait for higher prices. Apple is one of Broadcom's largest customers. This company has a market capitalization value of about $19 billion.
Here are some key points for BRCM:
- Current share price: $35.29
- The 52 week range is $27.59 to $46.75
- Earnings estimates for 2011: $2.83 per share
- Earnings estimates for 2012: $2.75 per share
- Annual dividend: 36 cents per share which yields 1%
Cirrus Logic, Inc. (CRUS) designs and manufactures semiconductors which are used in products like mobile phones, tablets, DVD players, and more. Cirrus makes specialized audio chips for the Apple iPhone and the iPad. With demand for both of these products expected to remain very strong in the coming years, Cirrus will continue to benefit from Apple's success. Cirrus has a strong balance sheet and the stock should rise in the long-run whether or not Apple buys the company. This company has a market capitalization value of about $1.4 billion.
Here are some key points for CRUS:
- Current share price: $22.18
- The 52 week range is $12.52 to $25.48
- Earnings estimates for 2011: $1.30 per share
- Earnings estimates for 2012: $1.51 per share
- Annual dividend: none
Qualcomm Inc., (QCOM) designs and manufactures integrated circuits for mobile phones. This company supplies Apple and many other top-selling smart phone makers with its specialized chips. Qualcomm shares offer a reasonable dividend (especially for a tech company) and the company has a strong balance sheet. Demand for mobile phones and tablets is likely to grow, especially as emerging market consumers spend more of their disposable income on luxury tech products like smart phones. Qualcomm shares have been rising, so buying on dips around $55 makes sense. This company has a market capitalization value of about $97 billion.
Here are some key points for QCOM:
- Current share price: $57.81
- The 52 week range is $45.98 to $59.84
- Earnings estimates for 2011: $3.57 per share
- Earnings estimates for 2012: $3.99 per share
- Annual dividend: 86 cents per share which yields 1.5%
Apple, Inc. makes products like the iPhone and the iPad which are in demand worldwide from people of all ages and income levels. Not many companies have people waiting in line to buy products as Apple does with its iPhone, iPad and other items. Even after a huge, multi-year run, Apple has price to earnings ratio of only about 11. Apple has a very cash-rich balance sheet and sooner or later management is likely to deploy some of the nearly $100 billion dollars on share buy-backs, dividends or acquisitions. This company has a market capitalization value of well over $400 billion.
Here are some key points for AAPL:
- Current share price: $444.63
- The 52 week range is $310.50 to $454.45
- Earnings estimates for 2011: $41.37 per share
- Earnings estimates for 2012: $46.16 per share
- Annual dividend: none
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I am long GLW.