CEO Steve Jobs is known for offering only top-quality, best-of-breed components, from the Apple II computer through the Apple TV, the company's latest consumer device.
Apple's answer to the digital media adapter consists of a box that connects to both your computer and your TV, allowing you to watch on your television all the iTunes digital media (video, audio and photos) you've downloaded for your video iPod.
This is a great device for me. Thanks to my video iPod I can watch
with no commercial interruptions, and now thanks to this Apple TV I can finally watch those episodes on a screen that's bigger than a square inch.
I set up a portfolio called
, made up of all the companies supplying parts to the Apple TV. This is a valuable starting point for research into these companies, which are attractive for two reasons:
If the Apple TV is a success, then all of these companies will benefit -- almost as much as Apple itself will benefit.
Even if the Apple TV itself is not a blazing success, it's nice that Steve Jobs took the time out from his busy schedule to show us the best possible tech products out there right now -- by taking those products and putting them into his latest device. We should thank Steve for all the hard work and research he's done!
Even if tech suffers setbacks, these best-of-breed stocks should hold up. But if the tech sector flies, these stocks should be leaders.
Now let's take a look at a couple of these names.
is first on the list. It makes the GE Force Go 7300 graphics processing units, or GPUs, which allow users to play the latest video games and experience home-theater quality video.
Nvidia is in great financial shape, with $1.12 billion in cash and no debt. The company had $707 million in EBITDA (earnings before interest, taxes, depreciation and amortization) over the last 12 months. And earnings are exhibiting steady growth: 2006 earnings were $1.50 a share, climbing to $1.71 in 2007, and analysts expect earnings per share to be $1.84 in 2008.
Nvidia's forward price-to-earnings of 15 is significantly below the average market P/E and below the forward P/Es of other specialty chipmakers, such as
(23 forward P/E ) and
(20 forward P/E).
P/Es don't always matter, as the earnings can be easily manipulated. But in these clean balance sheet situations, it sometimes is helpful to make relative comparisons with others in the same industry.
Although Nvidia has traditionally been considered a growth stock, it's interesting to note that the deep-value guys are picking it up. Al Frank's Value Fund, one of my favorite value mutual funds to piggyback, counts Nvidia among its holdings. The fund has a five-year annual return of 14.6%, vs. 6.3% for the
I first came across Al Frank's Value Fund in 2001 when I was buying up stocks that were so cheap they were trading for less than the cash in the bank. Two investors were in almost every stock: Al Frank and a small, private investor, Lloyd Miller. Check out all of the holdings in Al Frank's Value Fund on the
portfolio page. I've compiled a list of
Next up is
Marvell Technology Group
, another chip supplier for the Apple TV. The bet on Marvell is not a value bet. The company trades at a forward P/E of 30 and at 16 times cash flows when you back out its net cash of roughly $900 million.
However, as hedge fund manager and
columnist Cody Willard points out in his Stockpickr portfolio,
, Marvell has three chips going into every single PlayStation 3, and we're just at the beginning of this video-gaming cycle. Other chip stocks in the "Stocks for the 3G Video Game Cycle" include
Advanced Micro Devices
Steve Jobs is all about high quality, so for me it's always interesting to see his take on which are the best companies out there. For the rest of the Apple TV suppliers, check out the
portfolio on Stockpickr.
Stockpickr tip of the day:
A bunch of people have been posting portfolios on Stockpickr that they've also entered into
stock-picking contest. Here are a few of them:
Over the next several days, I plan on posting the portfolios of some of the top contestants, as well as a look at the "most actives" from the game.
If you post your Beat the Street portfolio on Stockpickr, please send me the URL, and I'll try to highlight it here.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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