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Apple (AAPL) is definitely the "tide" that can lift all boats. Being included in its latest new product launch can be a make or break for any component maker's stock. I have done well with investing in OmniVision Technologies (OVTI) over the years as it ebbs and flows along with its partnership with the juggernaut from Cupertino. Rumor has it that NXP Semiconductor (NXPI) among others is ramping up to supply the next generation iPhone. The next version of the phone should include Near-Field Communication ("NFC") technology like which is available in the new Samsung phones which NXPI supplies. The stock looks interesting from a valuation perspective as well.

Six reasons to pick up NXPI at $20 a share:

  • It has roughly 50% upside to reach the median price target of $30 that the 7 analysts have on the stock. In addition, Credit Suisse has an "outperform" rating on the stock and recently upped its price target to $33 a share.
  • NXPI is cheap at under 7.5 times forward earnings.
  • Consensus estimates for FY2012 and FY2013 have gone up 3% in the last two months, despite the downturn in the overall market.
  • Revenue growth is expected to accelerate from FY2012 to FY2013 and the stock has a very cheap five year projected PEG (.50).
  • The company is in its sweet spot within its products cycle. Credit Suisse expects it to go from $1.50 EPS in FY2010 to $3 EPS in FY2013 as it improves its operating margins and pays down debt.
  • The stock was over $26 less than two months ago. Its rising earnings estimates and confirmation of supplying the next iPhone should be enough to regain those levels in the near term.
Source: NXP Semiconductor: Next Generation iPhone Could Boost This Undervalued Component Maker