Apple (NASDAQ: APPL) gave shareholders and technology lovers something to talk about last week when released its newest iPhone.
But the iPhone 7 has been met with love and hate . . . and a few shrugs.
The previous edition of the iPhone was the first to undersell its predecessor. The worry is that the iPhone 7 could meet the same fate, or that the phone won’t be compelling enough to persuade consumers to upgrade.
Apple stock has been a lackluster performer even with the announcement of a new and improved iPhone. Shares of Apple are now down 5% in the last year. And for all the worry, there’s still a lot to love about the new iPhone, including its water resistance, better camera and longer battery life.
The iPhone 7 is taking a lot of heat for removing the headphone jack completely, but it’s all part of Apple’s plan to build iPhone’s own product ecosystem. Don’t forget that Apple owns the No. 1-selling brand of wireless headphones, Beats.
The selloff in shares of Apple could be a buying opportunity.
For all the naysaying, investors shouldn’t be too worried about the new iPhone. Apple has a loyal customer base and still commands pricing power. With that in mind, here are the top three stocks that will benefit from the new iPhone 7:
Best iPhone 7 Stocks: Apple
Naturally, Apple is the best play on the new iPhone, as the iPhone 7 will still sell millions of devices. Its ecosystem is still flourishing, as the number of iOS devices continues to grow, with the rate of consumers switching from other smartphone brands to the iPhone is at the highest rate ever.
This will continue with the iPhone 7. Although it’s not seen as a groundbreaking device, it still presents more value than the iPhone 6 and many other competing devices. Plus, from an investment standpoint, Apple is paying out a 2.2% dividend yield and trading at less than 12 times next year’s earnings estimates.
Best iPhone 7 Stocks: Amphenol (NYSE: APH)
Beyond Apple, various companies make parts for the iPhone. To start, we’ve examined the supply-chain companies that have the most to gain from a solid showing by the iPhone 7.
Amphenol Corp. is high on the list. It’s a major maker of electronic and fiber optic connectors and gets about 10% of its revenues from Apple. This revenue is driven by iPhone and iPad connector sales.
Beyond its iPhone exposure, Amphenol is also a leader in high-growth areas like automotive, IT and aerospace. Amphenol also pays a 0.9% dividend yield.
Best iPhone 7 Stocks: Western Digital (NYSE: WDC)
Western Digital is an underrated play on the new iPhone, as it’s a storage company. It is one of the few players in the hard disk drive storage market.
Western Digital gets about 5% of its revenues from Apple. But Western Digital also owns SanDisk; it paid nearly $20 billion for the company in 2015. SanDisk is a major player in the NAND flash semiconductor market. Before being bought by Western Digital, SanDisk had over 15% of its revenues exposed to Apple.
The iPhone continues to grow in storage size; the iPhone 7 effectively doubles storage capacity from the iPhone 6. That continues to be good news for Western Digital.
Western Digital offers a very hefty 3.8% dividend yield. It’s also one of the cheapest Apple opportunities out there, trading at around eight times next year’s earnings estimates.
Although new iPhone’s unveiling just didn’t spark the excitement that older versions created at launch, this could be an underrated buying opportunity as investors overlook the potential of the iPhone 7. While Apple is an obvious choice, it’s worth considering other supply-chain plays as well.