Looking Inside the iPhone to Find Big Returns

Rob Spivey

As soon as Apple (AAPL) releases a new iPhone, people start to tear it apart... literally.

It's a time-honored tradition to go beyond the surface of these new devices. YouTube is already full of videos of folks breaking apart the iPhone 14 to see what's inside.

The goal is to understand what hardware has changed since last year, as well as how each new model is evolving.

But these "teardowns" also serve another purpose...

If you're willing to go the extra mile in your research, these videos can give you an investing "edge." They've historically led to huge swings in the stock prices of smaller companies.

Astute investors can quickly identify the real winners (and losers) in the next generation of smartphones.

We used teardowns to find an opportunity in Cirrus Logic (CRUS) for our institutional clients back in 2014...

Cirrus is a semiconductor maker and one of Apple's core suppliers for something called "audio codecs."

In lay terms, an audio codec is the technology that helps optimize the sound coming out of and going into an iPhone. This is essential for any mobile device.

Cirrus was profitable, and it typically traded at a discount. Its as-reported return on assets ("ROA") was a meek 14% (and fell to 8% a year later). But its Uniform ROA was close to double the as-reported number in 2014 and roughly triple in 2015. And its returns steadily improved from there.

Take a look...

Generally accepted accounting principles ("GAAP") metrics were distorting Cirrus' returns. And it's partly thanks to those distortions that the market was missing the company's potential.

The way investors were treating the stock, if Cirrus' technology ever failed to make it into an iPhone, it would have destroyed the company. But that would have been unfair... After all, Cirrus is a chipmaker. Chips are essential to many goods besides iPhones.

And not only were Cirrus' products essential – the company was smart.

Unbeknownst to many, Cirrus quietly bought Wolfson Microelectronics, one of the other major industry players. It did this both to protect itself and to diversify.

If Apple turned to Wolfson for its chips, Cirrus would still benefit. And if Apple chose a different player altogether, Cirrus would fare fine... because Wolfson was also a big supplier to Android phones.

We knew that when the market realized Cirrus was diversifying, its discount would likely vanish. Investors would finally recognize just how profitable the company was.

That's exactly what happened...

During the seven years that we recommended Cirrus to our institutional clients, the stock was up more than 300%. It was one of our most successful recommendations to date.

Cirrus is a classic example of how you can use information that the rest of the market is ignoring to identify a company with a distinct advantage – and act on it before anybody else notices. That's called an "informational advantage."

We've been recommending mispriced opportunities to institutional investors and paid subscribers for a combined 13 years. And we've seen plenty of times where even though we were right about the fundamentals of a company, investors had to wait a while for the market to catch on.

But we think we've found a way to determine exactly what stocks to buy... and when.  

We've spent several months working with the team at our corporate affiliate, Chaikin Analytics, to better understand the timing behind our stock picks. Their one-of-a-kind "Power Gauge" system rates stocks to tell us when it's time to buy (and when we're early to the party).

For example, back in 2014, the Power Gauge turned "bullish" on Cirrus right when we did. That's why the stock quickly became a big winner.

We combined the Power Gauge's signals with Uniform Accounting to see if we could identify more investments with Cirrus-level potential. And that's exactly what we found. We call them "Perfect Stocks."

Our unique combination of systems allows us to discover mispriced stocks right as the market finally catches on. Said another way, we can get "ahead of the game" before these opportunities take off. And that can mean a huge boost to your portfolio in any market environment.

This new approach is unlike anything either of our companies has ever done before – and unlike anything we'll probably do again.

Last week, my colleague and Altimetry founder Joel Litman teamed up with Chaikin Analytics founder Marc Chaikin to detail exactly how their system works. Plus, they shared the names and ticker symbols of two promising stocks... and two to avoid at all costs today.

If you'd like to learn more about the opportunity in Perfect Stocks, you can check out the free replay for a limited time only. Click here to get started.

Regards,

Rob Spivey
September 27, 2022