Jackson Square Capital's Andrew Graham identifies the stocks of Apple suppliers that could benefit the most from sales of the newly released 5G iPhone. He also tells Reuters' Fred Katayama which ones to avoid.
FRED KATAYAMA: Stocks on Wall Street rising Friday on vaccine hopes and strong retail sales data. Now that Apple's finally released its 5G iPhone, let's explore some investment opportunities related to that. And for that, we go out to San Francisco, where we're joined by Andrew Graham. He's founder and portfolio manager at Jackson Capital-- Jackson Square Capital, rather. Welcome, Andrew.
ANDREW GRAHAM: Thanks a lot, Fred.
FRED KATAYAMA: Well, Andrew, so are investors better off buying more shares of Apple or those of their suppliers? Because the PEs, or the Price Earnings ratios, are rather high in these stocks.
ANDREW GRAHAM: I think a lot of people own Apple already. I don't know they necessarily need to add more. But it was, I think, a good launch event on Tuesday, the 5G iPhone launch. They had four different models they launched. I just thought that there were some positive readthroughs for the suppliers. There's three main suppliers I thought that would benefit.
FRED KATAYAMA: All right, let's talk about the supplier. I saw Corning on that list. Now Corning's always known for Gorilla Glass, but is there anything particular this time around that makes Corning perhaps more-- have more potential as an investment?
ANDREW GRAHAM: Right, of the three, I thought Corning was, obviously, the one that we sort of expected. But it's a higher price glass. It's a ceramic glass. So higher average selling prices is better for profit margins.
And Corning pays a nice dividend yield of 2 and 1/2%. I mean, that all works out well. Part of our income generating portfolios. So Corning's a name that we continue to like. We thought the event was positive for Corning.
FRED KATAYAMA: It's supposed to be a stronger glass, too, this time around, right?
ANDREW GRAHAM: Yes. Yes, for sure. I don't know if we're going to be able to replace our phone covers, you know, the ones that we buy and walk around with. But I'm sure we'll have them tested pretty soon.
FRED KATAYAMA: And Qualcomm and m-wave, tell us what that does to the iPhone and why that makes it good for Qualcomm.
ANDREW GRAHAM: Yeah, I thought the surprise was-- so going in, we thought that two of the phones probably would have millimeter wave functionality capability. They all come with all the 5G frequencies for the next five to six years in the United States. So that's all good.
The millimeter wave capability has a lot of other functionalities for AR and so forth. And we thought two would probably have it, now that all four models have that, just increases the components, the RF components and all the Qualcomm components that go into the phone. It's a positive revenue note on Qualcomm.
Qualcomm stock's done really well, so it's really difficult to buy it here. We would love to see it pull back. We're just not going to get it based on what we saw Tuesday. It was positive.
FRED KATAYAMA: On that theme, would you also wait for a pullback on Glass Works? Because that stock is-- the P on that, last time I looked, was in the 300s.
ANDREW GRAHAM: We wait for pullbacks on all stocks. We think the last two weeks, it was just three weeks, I guess, is just-- you know, stocks [INAUDIBLE] just ran away. We're almost fully invested, which I suppose is nice. But for new money that comes in, you know, we're just waiting for a pullback. We prefer to buy things when they're oversold. And right now, there's a short-term technically overbought. We can see that burning off in two to three weeks.
FRED KATAYAMA: So ditto on Momentum, which is also on your list.
ANDREW GRAHAM: Mm-hmm, yeah. Well, so Momentum has two-- so the phone now has this AR capability. Two of them do, two high end phones. And Momentum makes a LIDAR product. So that LIDAR product was on the last phone, the ones that are out in the public now, for face recognition.
But they're doubling the amount of components for those top two and high end phones to allow AR functionality, also to allow for portrait mode with dim lights, say, at night and so forth. So there's some fun things you can do with it, but it really doubles the revenue opportunity for Momentum in Apple.
So we see it very positive for Momentum, very positive for Qualcomm. And I think of them, you know, if we're going to try to find a place to-- you know, on the pullback or what have you, the one that we're probably lighter on is Momentum. And we would look for an opportunity to add.
FRED KATAYAMA: And lastly, Andrew, which ones would you stay away from at this point, supplies?
ANDREW GRAHAM: Well, yeah, the big surprise from the event, I think, was from the suppliers-- excuse me, from the service providers. So it was AT&T just came out swinging and super aggressive with pricing and offering trade-ins on iPhone 8 models and above. That was far more aggressive than I think the Street was expecting. It was more aggressive than their competitors were expecting.
And so T-Mobile went on a program and sort of did a hasty sort of answer to it. And I thought that wasn't really well thought out. And so there's a little bit of aggressive pricing going on for the service providers. We don't see it turning into a price war that lasts anything beyond the first or second quarter.
So it's an opportunity for us to add T-Mobile, which we love, here, which lots of synergies after the Sprint merger. And so this pullback, which we're definitely getting-- it's already started and T-Mobile-- would be a chance to add that. So it's probably, of all the names that we're talking about, that's probably the easiest one for us. But we're going to wait for it to finish its little moment here when people worry about pricing.
FRED KATAYAMA: All right, wait for that then. Thanks, Andrew, for your thoughts. Appreciate it.
ANDREW GRAHAM: Sure.
FRED KATAYAMA: Our thanks to Andrew Graham of Jackson Square Management-- Capital, rather-- in San Francisco. I'm Fred Katayama in New York. This is Reuters.