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4 Bubblelicious Chip Stocks for the Smartphone Boom


Unlike other booms, the red hot smartphone market has been built on natural end-user demand, making these semiconductor stocks attractive buys.

The basis for most good investment ideas is common sense.

Most of the successful stock picks I've made during my lifetime have come when my starting thought was something like "Hey! That company's selling a whole lot of stuff. It might be a good buy."

I stumbled onto Activision (ATVI) as one of the great all-time no-brainers back in 2006 after regularly seeing huge crowds around Guitar Hero demo stations at Best Buy (BBY). Additional research revealed a consumer craze to which Wall Street paid little attention.

On the other hand, I've gotten my butt in a sling quite a few times when I've come up with absurd views like "Oh, Wall Street is collapsing but I am 100% certain that my financial stock will go up.


This line of arrogant thinking led to an ugly misadventure with derivatives-broker GFI Group (GFIG) back in the storm of '08.

Now, when I look around the tech-world looking for hot-selling products, all I see is smartphones.

If a gadget-related company is doing well today, odds are it's levered to the smartphone boom.

Last Thursday, International Data Corporation (IDC) said that smartphone sales grew 80% in Q1, an impressive follow-up to the blistering 74% mark the industry achieved in 2010. IDC said in March that it expected full-year smartphone unit growth to come in at just 49%, so the industry's off to an incredible start.

Individual companies' news and data points are echoing these numbers.

Google (GOOG) announced at its I/O conference this week that Android-device activations are now at 400,000 per day, doubling numbers the company reported last summer.

Japanese mobile-carrier Softbank just reported a surge in operating profit on the back of huge sales of Apple's (AAPL) iPhone. Ditto for carrier KT Corp. of South Korea.

However, while I'm still insanely bullish on smartphone demand, I'd say that all signs are pointing to a smartphone bubble that will eventually pop.

I say this because beyond the market-share shifts that punish stocks like Research In Motion (RIMM) and Nokia (NOK), the smartphone newsflow is all good, all of the time.

This happy state of affairs just can't last forever.

For now, I'm encouraged by the fact that the smartphone boom has been built on natural end-user demand for hot products. This is very different from the Internet and housing bubbles, which were largely dependent upon irresponsible debt financing and investors' over-enthusiasm.

So as long as the broader industry is humming along, I'm content to ride the wave with a very large chunk of my portfolio.

My primary smartphone plays have been Apple (AAPL), ARM Holdings (ARMH), and Motorola Mobility Holdings (MMI).

However, after digging around for more companies that are making mega-bucks in smartphones, I've identified four semiconductor stocks that I see as big winners as the smartphone bubble continues to inflate.

These names have three very important things in common: They are 1) levered to smartphone industry sales volumes, 2) regularly smashing Wall Street's earnings estimates, and 3) in possession of additional growth drivers.

So without further delay, here are my four favorite smartphone-centric semiconductor stocks:

1) Sandisk (SNDK)

As the world's leading supplier of flash-memory storage products, Sandisk is incredibly well-positioned to benefit from booming demand for mobile-computing devices, particularly smartphones and tablets.

Unlike your Grandpa's PC, this new class of gadget is wholly dependent upon flash memory for its storage needs. And going forward, you'll find that laptops will increasingly feature flash-based drives in place of old-school hard disks, giving Sandisk an additional long-term growth driver.

2) Qualcomm (QCOM)

For the past few years, I've lumped Qualcomm in with Microsoft (MSFT) and Intel (INTC) as being decidedly old-school.

However, the mobile boom has kicked Qualcomm into high-gear, giving the company a pretty impressive streak of earnings beats as mobile-handset demand continues to outpace the expectations of even the biggest optimists.

Aside from smartphones, Qualcomm shareholders should be very encouraged by increasing sales of 3G wireless-enabled tablets and laptops, which give the company two additional strong end-markets for its chips.

3) Integrated Device Technology (IDTI)

IDT makes a variety of chips for consumer gadgets and enterprise IT applications, but it is seeing its most impressive growth from the wireless-infrastructure market, where its products help service providers eliminate data bottlenecks on their increasingly-stressed wireless networks.

Thus, IDT has its hand in a lot of very tasty pies, including the telco's transition to 4G/LTE networks and the cloud computing boom.

4) Silicon Motion Technology (SIMO)

Silicon Motion sells a wide variety of chips for consumer-electronics devices including smartphones, digital cameras, PC's, and tablets.

The company's biggest business line is its flash-memory device-component division, putting it right in line with Sandisk as a major beneficiary of the flash boom, which itself is related to the smartphone bull market.

In addition, Silicon Motion has small but fast-growing mobile-communications device business, giving the company a direct connection to growing smartphone demand.

New! The TechStrat Report by Sean Udall. Sean provides in-depth analysis, strategies and trades across the technology sector. Take a FREE 14 day trial.
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