Is Qualcomm Resilient?

With shares of Qualcomm Incorporated (NASDAQ:QCOM) trading at around $63.93, is QCOM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

In the wireless world, Qualcomm is known as the innovator of code division multiple access technology. In the analyst world, Qualcomm is widely known as a great long-term investment. Are analysts correct? No one knows the answer to that question, but an opinion based on current circumstances will be offered in the Conclusion section. There are both positives and negatives for Qualcomm.

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Positives:

  • Leader in high-end smartphone market
  • Smartphone growth in China
  • Chipset vendor for Apple Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), and Samsung
  • Increased demand for smartphones and tablets
  • Management firmly believes in revenue and earnings growth through 2018
  • Consistent revenue improvements on an annual basis
  • Consistent earnings improvements on an annual basis
  • Strong margins
  • Excellent cash flow
  • Targeting Vietnam market
  • 2.10 percent yield
  • Shorts fear betting against the stock
  • Stellar balance sheet

Negatives:

  • Will lose revenue when handset prices drop
  • Global economic uncertainty
  • Increased competition

Positives clearly outweigh negatives. It should also be noted that Qualcomm has a 3.8 of 5.0 rating on Glassdoor.com, which is very high. This indicates a good company culture. Even more impressive is that 87 percent of employees would recommend the company to a friend. There’s one number yet even more impressive than that. An amazing 92 percent of employees approve of CEO Paul E. Jacobs. These types of numbers aren’t often seen in any industry, and it’s a testament to superb leadership. If employees are happy, then they’re much more likely to be productive.

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Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Qualcomm, Intel Corporation (NASDAQ:INTC), and Broadcom Corp. (NASDAQ:BRCM). Qualcomm has a market cap $109.77 billion, Intel has a market cap of $110.30 billion, and Broadcom has a market cap of $18.19 billion.

QCOM

INTC

BRCM

Trailing   P/E

16.87

10.47

25.57

Forward   P/E

13.01

10.88

10.44

Profit   Margin

32.33%

20.63%

9.19%

ROE

18.12%

22.66%

10.01%

Operating   Cash Flow

$6.19 Billion

$18.88 Billion

 $1.93 Billion

Dividend   Yield

2.10%

4.20%

1.30%

Short   Position

0.80%

4.80%

1.30%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong        

The debt-to-equity ratio for Qualcomm is stronger than the industry average of 0.30. Qualcomm’s debt management is phenomenal.

Debt-To-Equity

Cash

Long-Term Debt

QCOM

0.00

$13.28 Billion

$31.00 Million

INTC

0.27

$18.20 Billion

$13.57 Billion

BRCM

0.22

$2.37 Billion

$1.69 Billion

 

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T = Technicals Are Mixed       

Qualcomm has performed well over the past three years, but it has been a choppy ride in some spots.

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1 Month

Year-To-Date

1 Year

3 Year

QCOM

-2.75%

3.73%

4.36%

55.66%

INTC

5.95%

10.00%

-15.64%

3.03%

BRCM

-9.34%

-3.66%

-7.14%

-7.53%

 

At $63.93, Qualcomm is trading below its 50-day SMA and 100-day SMA, but above its 200-day SMA.

50-Day   SMA

65.97

100-Day   SMA

64.81

200-Day   SMA

62.58

 

E = Earnings Have Been Strong                            

Earnings have consistently improved on an annual basis since 2010. The same can be said for revenue. What’s especially impressive here is the revenue growth over the past two years. This has taken place while many companies throughout the broader market have seen revenue declines in 2012.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

11.14

10.39

10.98

14.96

19.12

Diluted   EPS ($)

1.90

0.95

1.96

2.52

3.51

 

When we look at the previous quarter on a year-over-year basis, we see improvements in revenue and earnings. There were also revenue and earnings improvements on a sequential basis.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

4.68

4.94

4.63

4.87

6.02

Diluted   EPS ($)

0.81

1.28

0.69

0.73

1.09

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The industry is holding up at the moment, but it would be hard to image smartphone and tablet demand remaining strong if the global economy falters. If there are difficult times ahead, then high-end smartphones and tablets won’t be seen as priorities, which will impact the chip industry.

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Conclusion

Qualcomm management is wise. It has anticipated a difficult economic environment and has planned for it accordingly. Qualcomm has partnerships with telecom carriers to offer lower-prices smartphones and tablets.

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Qualcomm products are known for their speed, quality, and reliability. The company’s reputation is superb, which goes a long way. However, if the global economy weakens, then the stock will suffer. The good news is that the stock should hold up better than the majority of its peers. The 2.10 percent yield is an added bonus. Qualcomm’s impressive cash position should also allow the company to weather any economic storms well.

If good times are ahead, then Qualcomm is an easy winner. If there are difficult times ahead, then the stock should still eventually recover. That being the case, it would be wise to take a conservative approach to cost averaging down.

Qualcomm is a long-term OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.