Two New Ways for Investors to Play Apple's Dominance

NEW YORK ( TheStreet) -- With rumors swirling that Apple's ( AAPL) iPad Mini could make its debut within the next few weeks, there's plenty of speculation about the component makers that may have won a coveted spot within the device.

Apple product launches always cast a spotlight on the chip makers that have clinched lucrative deals with the tech giant -- but there could be another, less obvious way, to tap into the iPhone and iPad maker's growth.

Robert Luna, CEO and chief investment officer of SureVest Capital Management, told TheStreet that, while banking on a chip maker's ongoing relationship with Apple can be risky, companies such as Disney ( DIS) and even Priceline.com ( PCLN) could be safer bets. "It's a huge opportunity for content providers and these online retailers," he said, pointing to the "larger halo effect" that helps drive revenue at Apple-related firms.

Apple devices offer companies with the right products and services a great launch pad for their wares, from Disney's popular Mickey Mouse Clubhouse app and Marvel's Captain America comics to mobile apps for clinching last-minute hotel deals.

Charles King, principal analyst at Pund-IT Research, thinks content providers certainly have a chance to "capture some of the iPad's lightning." Disney's existing web of distribution and sales channels also offer a greater level of security in its dealings with Apple, he added, particularly compared to music companies struggling with the dominance of iTunes.

The analyst even speculates that Apple could forge closer relationships with companies like Priceline and Internet giant IAC/Interactive ( IACI), citing the fallout from the company's decision to turn its back on Google's ( GOOG) maps app. "Apple may decide it's in its best interests to work with knowledgeable partners like Priceline and IACI, rather than to try to do everything on its own," he wrote, in an email to TheStreet.

SureVest's Luna, who holds positions in Disney and Priceline, also likes the companies' current valuations.

Apple, of course, is just one player in the mobile market. Disney and Priceline are also riding the wave of Android devices from the likes of Samsung, Amazon.com ( AMZN) and Motorola.

Nonetheless, here's why the content provider and the online retailer could be smart ways to tap into the Apple phenomenon, particularly with the iPad Mini rumored to be on deck:

DIS Chart DIS data by YCharts

Walt Disney

With smartphones now seemingly ubiquitous and tablets increasingly common, Disney's vast trove of content puts it in a great position. "We really see Disney as the largest benefactor of the mobile trend in the content companies," said SureVest's Luna, also pointing to IAC/Interactive. "I don't think it's any coincidence that these stocks have really been rallying over the last year and a half, two years - these were stocks that were dead money for quite a while."

Disney, a Dow component led by Wall Street darling Bob Iger, recently delivered the largest quarterly earnings in the company's history and the entertainment giant's shares have climbed an impressive 41% this year.

The Burbank, Calif.-based company is no stranger to the mobile market. In June, for example, Disney launched three streaming apps for the iPhone and iPad, the result of a major distribution deal with Comcast ( CMCSA).

The launch gives Comcast's Xfinity TV customers who subscribe to the Disney Channel, Disney XD and Disney Junior networks access to the WATCH Disney Channel, WATCH Disney XD and WATCH Disney Junior live streaming apps. The move came followed a similar arrangement to live stream ESPN programs to Xfinity TV customers via iOS devices.

In 2011, Disney's ESPN subsidiary also launched a live streaming ESPN app for smartphones and tablets with Time Warner Cable ( TWC), Bright House Networks and Verizon ( VZ) FiOS TV subscribers.

Speaking during Disney's third-quarter conference call recently, CEO Bob Iger said that he's pleased with the response to these efforts.

"We're very encouraged by the apps that we launched through Comcast and the app, the ESPN app that was launched by Time Warner about a year earlier," he replied, in response to an analyst's question. "The take up rate in terms of downloading the app and ultimately authenticating has been impressive and what's really impressive, particularly from the Disney Channel side is the number of shows that have been viewed on that app."

The CEO noted that people, particularly children, are willing to watch long-form video on mobile devices. Iger also described a "veritable queue" of distributors lining up to carry Disney's streaming apps.

Clearly, Disney's seeing great momentum in this space. Last week the company announced a major distribution deal with Cablevision ( CVC) to deliver a host of sports, news and entertainment via traditional television, tablets, phones and handheld devices. The deal encompasses around 70 services in Disney's portfolio, including ABC, Disney Channel, Disney Junior, ESPN and ESPN 3.

Live streaming, though, is just one part of the Disney empire, and the company has been quick to seize the opportunities offered by gadgets, whether for interactive books, games and even travel apps. A quick search for the term 'Disney' in Apple's App Store, for example, reveals 185 iPad apps and 255 iPhone apps.

Then there's comic giant Marvel, which was acquired by Disney in 2009. The following year, the company unveiled its critically-acclaimed Marvel comic app which became the top free iPad comic app within a day of its launch.

Underlining the seismic shift towards handheld gadgets, Marvel recently added digital codes to a number of super hero comics sold in stores, such as Avengers and Captain America. The codes, which clearly aim to lure readers into the lucrative online media market, provide free digital versions of each comic via iOS and Google Android devices.

"If you look at the tablet market for young children, Disney is pretty much attached to everything we look at," noted SureVest's Luna. "They have so many ways to leverage each new consumer - from a tablet going into a household, it opens the door to other merchandise, theme parks, and also television."

Apple's iPad, of course, has already enjoyed phenomenal success in the education market, increasing childrens' familiarity with the technology. With rumors intensifying that the company is about to launch a smaller-screen iPad Mini, better suited to smaller hands, Disney must be eyeing yet more revenue.

TheStreet Ratings rates give Disney an A+ 'buy' rating thanks to its stock performance, as well as the company's strong earnings and revenue growth.

PCLN Chart PCLN data by YCharts
Priceline.com

One of the world's largest online travel agents, Priceline's perfectly positioned for the mobile boom.

Research from ComScore, for example, found that nearly 40 million consumers accessed travel sites or apps from their smartphone during July's peak holiday season, reaching 37% of the smartphone population. Search giant Google ( GOOG) has also identified this trend, recently predicting that 35% of travel-related searches will come from mobile devices in 2012, a figure expected to reach 45% in 2013.

Cue Priceline, which has been attracting plenty of positive attention recently.

"I've actually been making the case for quite some time that the explosion of mobile devices, including the iPhone, iPad Mini, Nexus 7, Samsung Note and Kindle Fire all bode well for the holiday season for brick-and-mortar and ecommerce companies that are prepared to take advantage of mobile," wrote Daniel Kurnos, an Equity Analyst at Benchmark Capital, in an email to TheStreet. "Some notable examples of beneficiaries include Priceline, Orbitz ( OWW), Amazon and eBay ( EBAY)."

Priceline does not break out its mobile revenue, but acknowledges that this is a growing part of its business. In a recent note, Deutsche Bank ( DB) said that, last year, 6% to 7% of bookings for Priceline's Booking.com division came from the mobile space.

SureVest's Luna told TheStreet that online retailers such as Amazon and Priceline are in an enviable position when it comes to mobile transactions. "There's almost a detachment from the monetary value of the purchase that's being made on the phones," he said. "It's kind of like the casino effect where you use chips."

Priceline's certainly stepping up its efforts around mobile, with CEO Jeffrey Boyd keen to introduce new products which make it easier to complete their transactions. Last month, for example, Priceline added its Express Deals hotel booking feature to the Priceline Negotiator app, available for iOS devices, Android and the Web.

Whereas many of Priceline's businesses let consumers bid on travel, Express Deals offers deals at thousands of hotels without having to bid, something which Boyd sees as critical in the mobile space.

"We feel there is an opportunity not just in our opaque products but across the board to introduce new products in the mobile channel, try to make them very easy for consumers to complete a commercial transaction," he said, during the company's recent second-quarter conference call. Express Deals, he noted, offers consumers savings, but without the stress of bidding for a last-minute transaction on a small screen.

Other mobile moves from Priceline include the recent expansion of its Tonight Only Deals hotel reservation service and the launch of the last-minute Booking.com Tonight app. The company also offers a mobile version of its Web site.

Cantor Fitzgerald, which recently rated Priceline 'new buy' on the strength of overseas growth and market share gains, predicts a massive mobile boost for the online travel industry.

"We believe that the travel sub-segment is likely to see meaningful growth in mobile bookings, given that mobile apps enable customers to do travel planning on the go, track flight status and make/amend flight and hotel reservations," explained Naved Khan, an analyst at Cantor Fitzgerald, in a note. "Major online travel companies like Priceline, Expedia ( EXPE) and Orbitz have noted the traction they've been getting with their mobile applications."

Benchmark Capital's Kurnos estimates that Priceline may even be nearing Orbitz' mark of 20% of standalone hotel transactions via mobile. The company's decision to revive its popular 'Negotiator' ad campaign featuring William Shatner in August also bodes well for Priceline's brand recognition and market share in its auction business, he added.

TheStreet Ratings rates Priceline a 'buy' on the strength of its solid stock price, impressive earnings growth and notable return on equity.

-- Written by James Rogers in New York.

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