Daily Gains Letter

No Dividends Here, but Smartphone Companies Are Where the Future Is

By for Daily Gains Letter | Mar 1, 2013

















010313_DL_zulfiqarSmartphones and personal gadgets have gained some extra attention these days. With that said, many investors only focus on the makers of these phones, and not on the other things associated with them—such as accessories.

A report by ABI Research, a market intelligence firm, indicated that the market for mobile device accessories will grow at a 10.5% compounded annual growth rate from 2012 through 2017, due to the growth in smartphone sales. (Source: “Aftermarket Mobile Accessory Revenues to Reach $62 Billion by 2017 as Market Value Moves to Smart Accessories,” ABI Research web site, November 14, 2012, last accessed February 28, 2013.) The firm expects revenues for mobile device accessories to reach $62.0 billion by 2017.

The report also indicated that products like protective cases and stereo-wired headsets are predicted to show the highest growth rates of 18.2% and 15.6%, respectively. ABI Research tracks 13 accessory product segments.

As I have been saying in these pages, when there is a gold rush, a person selling the shovel can make the most money.

In that case, look at companies like ZAGG Inc. (NASDAQ/ZAGG). Please note: this is not a specific buy recommendation; rather the following information is meant to serve as an example of the type of opportunity you should look for.

ZAGG designs, manufactures, and distributes protective coverings and other products for electronic devices. Its flagship product, “invisibleSHIELD,” is a thin, scratch-resistant covering that’s custom-cut to fit invisibly on the screens and displays of Apple “iPhones” and other smartphones, laptops, GPS devices, and so on. The company also offers additional accessories, including headphones for “iPods” and MP3 players, and decorative cases for phones. (Source: ZAGG Inc. web site, last accessed February 27, 2013.)

The company announced that fourth-quarter net sales climbed by 30% year-over-year to $87.5 million from $67.5 million in the fourth quarter of 2011. ZAGG’s adjusted earnings before interest, taxes, and amortization (EBITA) for the period was up 12% to $20.9 million, compared to $18.8 million in the same period. The sales of invisibleSHIELD accounted for 43% of the company’s net sales. (Source: “ZAGG Inc. Reports Financial Results for Fourth Quarter and Full Year 2012,” ZAGG Inc. web site, February 26, 2013.)

On December 13, ZAGG announced a $10.0-million share repurchase program. The share repurchases will be made from time to time over the next 12 months at the company’s discretion, and they will be funded using its working capital. (Source: “ZAGG Announces Share Repurchase Program,” ZAGG Inc. web site, December 13, 2012, last accessed February 28, 2013.)

 

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Chart courtesy of www.StockCharts.com

Despite reporting record financial results, ZAGG’s share price has been in a downtrend over the past year. In August, it plummeted from near $11.00 to below $7.00 a share. In late November, the company’s share price slid further downward, testing its $6.50 support level. Since then, however, the company’s share price has been on the rebound. After announcing its corporate earnings, the company’s share price broke above both its downtrend of the past four months (since October) and its 50-day moving average (MA) on very strong volume—both bullish signs.

When it comes to retirement planning, investors don’t necessarily have to diversify their portfolio with big names. They can look for opportunity elsewhere. Keep in mind that no matter what the market condition is, there are always opportunities available for those who are in the process of retirement planning.

Companies like ZAGG don’t provide an investor with income, but they can be highly speculative—the capital gains can sometimes be much higher. With that said, investors should also take caution when they are planning for retirement—they should focus on diversification and long-term growth, not short-term gains.

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