Saturday, August 06, 2005

Market Opportunities: Apple Seeds

Apple iPod sales are still trumping analyst expectations.

Something like 12 miliion iPods have already been sold.

Apple CEO Steve Jobs has no plans on slowing down anytime soon, either.

The King of Reinvention announced last month that Apple will penetrate the cell phone business, beginning with a deal with Motorola, who's enjoying a lot of facetime right now because of their sleek RazR phone.

The Apple story reminds me of an old cliche I used to use back in my stock peddling days.

Its this: Don't buy the stock that everyone else is buying. Buy its supplier.

The theory is based on the success story of Levi Strauss, who made all its money during the gold rush days by supplying the miners with the tools and jeans needed for the job.

With that logic alone, in 2003 I had my clients loading up on Corning Glass Co -- I was convinced their earnings would skyrocket due to the high demand for LCD televisions.

The logic of the Supplier Stock Theory is as follows:

Every retailer has to acquire a product before they can sell you theirs.

A PC company like Dell, for instance, has to acquire chips from Intel and software from Microsoft before it creates a finished product.

Another example: China needs steel in order to modernize itself, so thus raw material stocks are red hot.

Simply put, focus less on the hot stock and instead pinpoint the top player behind-the-scenes.

Let's get back to the Apple seeds, as one Apple critic cleverly put it.

An iPod wouldn't function without the touch wheel, right?

The wheel is made by Synaptics.

Marvell Technology makes the tiny chips that the iPods cruise on.

How do you think those 2 stocks did during the last 12-18 months?

Synaptics went from $15 to $38 a share; Marvell went from roughly $23 to above $43 a share.

Instant doubles.

I rest my case.

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