Will Qualcomm Surge Higher?

With shares of Qualcomm (NASDAQ:QCOM) trading around $65, 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:

T = Trends for a Stock’s Movement

Qualcomm is engaged in design and manufacture of digital communications products and services. The company operates in four segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; Qualcomm Wireless & Internet; and Qualcomm Strategic Initiatives. It develops and supplies integrated circuits and system software based on CDMA, OFDMA, and other technologies for uses in voice and data communications, networking, application processing, multimedia, and global positioning system products. The mobile industry has been hot in recent years and looks to continue as countries worldwide keep developing. As an increasing number of consumers and companies operate through mobile devices, look for Qualcomm to be a leading provider of essential products for many years.

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T = Technicals on the Stock Chart are Mixed

Qualcomm stock has seen a consistent uptrend over the last several years. The stock has just recently pulled back from multi-year highs and looks to be consolidating at these prices. 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 around its rising key averages, which signal neutral 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

18.04%

6%

7%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

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

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-17.19%

34.57%

19.67%

13.11%

Revenue Growth (Y-O-Y)

23.89%

28.56%

18.34%

27.68%

Earnings Reaction

-5.39%

3.91%

4.38%

4.26%

Qualcomm has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with Qualcomm’s recent earnings announcements.

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P = Average 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

5.59%

10.12%

-7.85%

18.19%

1.88%

Qualcomm has been an average relative performer, year-to-date.

Conclusion

Qualcomm provides essential products to a growing mobile communications industry around the world. The stock has been trending higher over the last several years but is now taking a break just below multi-year highs. Earnings and revenue figures have generally been increasing, which has kept investors upbeat throughout most quarters. Relative to its peers and sector, Qualcomm has been an average year-to-date performer. WAIT AND SEE what Qualcomm does this coming quarter.

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