Citi: 6 Smartphone Stocks to Buy, 4 to Sell

Citi analysts have a Buy rating for Apple Inc. AAPL, Samsung Electronics, Alps Electric, AAC Tech, Goertek and Sunny Optical. The Sell rating is for TDK, Taiyo Yuden, Catcher and Foxconn Technology company. The analysts have a Neutral for Lenovo.

Analyst Jim Suva said he liked Apple for the following reasons:

1. Expectations for iPhone units appear low, with consensus forecasting a y/y decline of 8 percent for the September quarter and 1 percent for the December quarter, which Apple should be able to achieve.
2. Apple's gross margins are likely to trough in the June quarter; following which the company should generate margin expansion, lending upside to its stock
3. Apple is likely to gain share in the new iPhone markets, such as India, and could use the iPhone SE model to get first time adopters onto the Apple IOS platform
4. Valuation appears attractive

Other Buy Rated Stocks

Analyst Henry Kim expects Samsung’s mobile margins to stabilize, driven by the “differentiated high-end leadership with OLED screen and improved platform efficiency in the mid- to low-end segment.”

Analyst Kota Ezawa believes Alps is poised to benefit from the Japanese smartphone market’s dual camera adoption and new entry into haptic devices.

Analyst Mark Li said that Sunny Optical was achieving improving sales growth in handset camera modules and had a growing contribution from dual-camera HCM.

Analyst Dennis Chan is bullish about the acoustics sector, which has AAC and GoerTek, as this space has still been recording over 20 percent sales and earnings growth, driven by content per box upgrades.

Sell And Neutral Rated Stocks

Ezawa expects TDK could be impacted by the shrinking HDD head business and limited contribution from smartphone RF components, while Taiyo Yuden’s performance is under pressure from a negative FX impact.

Chan recommended avoiding the metal casing sector [Catcher and Foxconn Tech] on capacity oversupply.

Analyst Arthur Lai believes 2016 would be a transition year for Lenovo.