Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), Target (NYSE:TGT) and 7-Eleven have formed a corporation to develop an NFC payment option in their locations (see more here). One second. What is NFC? Why are four giant companies teaming together to do this? What is this $1 trillion play? NFC stands for "near-field-communication." The technology has the potential to completely replace the wallet by using your mobile devices instead. NFC technology has the ability to pay for your restaurant tab, check out that book from your library, and serve as your state I.D. Wal-Mart, Best Buy, Target and 7-Eleven aren't the first to start pursuing this next evolution of commerce. Companies such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Samsung are just a few others. None of those companies are anything to scoff at, and NXP Semiconductor (NASDAQ:NXPI) is perfectly positioned to capitalize on this booming industry.
Bucking this trend is a way to lose money hand over fist. Whether you like it or not, this technology is being pursued heavily by some of the biggest tech and consumer goods companies. Between the technology required in mobile devices, and the technology required for payment terminals to execute payments, this industry is expected to grow to more than $1 trillion over the next decade (the pros words, not mine). Most rumors out there even expect the new iPhone, which will be unveiled on September 12, will implement NFC technology (latest iPhone rumors). So how do you play this new "it" technology? There are three companies at the forefront of this space whether it be through superior products, or through the best portfolio of patents in the space.
Qualcomm (NASDAQ:QCOM) made over $47 million off of its NFC chips last year. While the company doesn't have the best patent portfolio in the space, experts believe Apple will be using its NFC chip set in the new iPhone. With a hot product about to be released, and millions upon millions of units about to be sold, it's safe to bet that Qualcomm could provide a hefty return. That's if the "experts" are correct.
Broadcom (BRCM) probably has the best NFC chip set out on the market right now with its 40 NM chip. Also putting some wind behind Broadcom's proverbial sail is the fact that the company is undervalued compared to Qualcomm. With a PEG ratio of .82, annual EPS of $2.93, and a forward P/E of 11.44, Broadcom has the better fundamentals over rival Qualcomm. While Broadcom is considered a more mature company with a somewhat stagnant growth rate, NFC technology could be the shot in the arm shareholders are looking for.
NXP Semiconductor (NXPI) has the best patent portfolio in the space, in my humble opinion. With an impressive client portfolio of Google, Apple, Microsoft, Samsung and others, this relatively young stock has plenty of room to grow. The recent downturn of the stock from $26 to sub $23 came mostly from rumors that Apple will be using Qualcomm's chip instead of NXP's. While that would hurt NXP's bottom line, the company has broken into the tablet space and is growing far more rapidly than Qualcomm or Broadcom. NXPI has a PEG ratio of .44, a forward P/E of 8.29, and is easily the most nimble of the three NFC players. That allows the company to expand and contract different areas of R&D to capitalize on new market trends.
NFC technology cannot be ignored, and your portfolio can't afford to ignore it either. With all of these companies heavily pursuing their own payment systems, it's seeming more and more likely that this is the technology of the future. I would suggest that you research each of the mentioned companies further, but my money is on NXP Semiconductor capitalizing on this rapidly growing industry. There is no reason you should skip grabbing a piece of the coming $1 trillion sector, especially when you look at who is already on the guest list.
Disclosure: I am long AAPL, NXPI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investing in stocks always involves a certain level of risk. As such, you should never invest any money you can not afford to lose. Always remember to consult with a licensed financial professional before considering adding any investments to your portfolio(s).