Money
& Investing 
When It Comes to Apple’s New iPhone,
Try Dialing a “Cousin Stock” for Profits
Apple Inc. (AAPL) made a big splash with the introduction of its new iPhone. It is a handheld portable camera telephone, wireless web browser and multimedia player all rolled into one.
Apple’s stock moved sharply higher on the news in January. It was up 7.10 to 92.57 on January 9 and then 4.43 to 97 the next day. The total two-day gain was 11.53, or 13 percent.
However, there was another stock that did very well too.
To savvy investors, that stock is know as a “cousin stock”. It is one that benefits greatly from the success of a new product or service of another firm. Many times, the “cousin stock” is out of the eye, or should I say ear, of the average investor.
In the case of the iPhone, one “cousin stock” that did very well off the news was micro-cap play Synchronoss Technologies, Inc. (SNCR), a provider of software and services that communications service providers use to manage service activation and customer transactions.
Synchronoss’ stock soared 3.54 to 17.07 during the same two-day period as Apple's upsurge. The percent gain for Synchronoss was 26 percent -- double the gain Apple’s stock achieved.
You might say too that Synchronoss is a “second cousin”. The play here is that Apple will work with Cingular Wireless as its mobile phone firm for the iPhone. Cingular handles some 60 million subscribers and has one of the largest data networks in the U.S. It is 60 percent owned by AT&T and 40 percent by BellSouth.
How does Synchronoss fit in? Synchronoss gets 80 percent of its 54 million dollars in sales from Cingular Wireless. So, the obvious play is that Synchronoss earnings and sales should benefit substantially if the iPhone is a big hit, and it could be. Apple did extremely well with its revolutionary iPod product.
Of course, there is risk -- the iPhone may not click, or Apple may drop Cingular, or Cingular may drop Synchronoss. However, by the way the stocks acted, the market is saying this looks like a good thing for Apple and Synchronoss.
This year, analysts expect Synchronoss to post a 39 percent increase in earnings to 43 cents a share from an anticipated 31 cents in 2006. The stock sells with a price-earnings ratio of 38 based on 2007 net.
Apple’s profits are expected to be up 22 percent for the fiscal year ending September of 2007. Apple sells with a price-earnings ratio of 33 based on fiscal 2007 net. Apple introduced the iPhone at the Macworld Conference and Expo. It plans to bring out the iPhone in June, pending various approvals.
Some other cousin stocks to the iPhone could be Samsung Electronics for a video processor, Marvell Technology Group Inc. and Infineon Technologies Ag for chips, Broadcom Corp. for a controller, Cambridge Silicon Radio for the Bluetooth product and Largan Precision for camera lenses.
Samsung Group (SMSN), with 80 billion dollars in sales, trades on the Korean Exchange at 308 dollars as of mid-January. Marvell (MRVL) is at 20 dollars. Infineon, based in Germany, sells for approximately 11 dollars a share and Broadcom at 32. Cambridge, which is known as CSR, trades on the London Exchange, and, finally, Largan Precision Co. is in Taiwan.
A very speculative “cousin play” for iPhone is Zap (ZAAP) based in Santa Rosa, CA. The stock sells at 93 cents. The firm (with annual sales of 3.6 million) makes batteries for use with the iPod and the iPhone.
Apple plans to sell a 4 gigabyte model for 499 dollars and an 8 gigabyte model for 599 dollars.
eSignal subscribers should watch these cousin stocks closely. They could perform very well if the iPhone takes off. One should also be on the lookout for other new plays off the new product.
As this bull market unfolds, other interesting products will be developed, and other stocks will jump on the news. Always look for cousin plays.
One way for eSignal subscribers to do that is to study the news announcement from a firm making a major product announcement. Look for any firm mentioned in the release as a key supplier.
Also, on the day of the announcement, check eSignal’s Power Scanner for stocks showing unusual price and volume action. You might be surprised to find a small stock that could do very well as it tries “to hitch its wagon to a star.”
Mr. Fasciocco’s articles appear at www.tickertapedigest.com. He is a contributing writer for several national publications. He is also president of Corona Investment Management.
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