Is Qualcomm A Hot Stock?

With shares of Qualcomm (NASDAQ:QCOM) trading around $66, 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:

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T = Trends for a Stock’s Movement

Qualcomm designs, manufactures, and markets digital wireless telecommunications products and services. The mobile industry is in a powerful trend that shows no signs of slowing. Also, the telecommunications industry has seen consistent demand from developed and developing countries across the globe. Qualcomm is well-positioned in an industry that is poised to see profits into the future.

Head on over to the next page to explore the technical landscape of Qualcomm’s stock…

T = Technicals on the Stock Chart are Weak

Qualcomm stock has seen a powerful uptrend since finding support after the technology bubble burst. Currently, the stock continues to make multi-year highs and looks to have all-time highs as its next target. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Qualcomm is trading above its rising key averages which signal bullish price action in the near-term.

QCOM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Qualcomm options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Qualcomm Options

21.68%

60%

65%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Qualcomm’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Qualcomm look like and more importantly, how did the markets like these numbers?

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2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

34.57%

19.67%

13.11%

116.95%

Revenue Growth (Y-O-Y)

28.56%

18.34%

27.68%

27.73%

Earnings Reaction

3.91%

4.38%

4.26%

-6.6%

Qualcomm has seen increasing revenue and earnings over the last four quarters. From these figures, the markets have been very excited about Qualcomm’s last four earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Qualcomm stock done relative to its peers, Broadcom (NASDAQ:BRCM), Nokia (NYSE:NOK), Texas Instruments (NASDAQ:TXN), and sector?

Qualcomm

Broadcom

Nokia

Texas Instruments

Sector

Year-to-Date Return

1.92%

-0.85%

-20.68%

8.34%

-0.55%

Qualcomm has been one of the relative performance leader of its sector.

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Conclusion

Qualcomm is an established company in an industry that is seeing a significant amount of growth. The strong industry trend has led the company to post amazing earnings and revenue growth rates that have pleased investors. Relative to its peers and sector, Qualcomm has been one of the performance leaders. Look for Qualcomm stock to continue to OUTPERFORM.

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