Is Qualcomm an Attractive Investment?

With shares of Qualcomm (NASDAQ:QCOM) trading around $72, 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 the design and manufacturing of digital communications products and services. The company operates in four segments: Qualcomm CDMA technologies, Qualcomm technology licensing, Qualcomm wireless and 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.

Qualcomm released its first fiscal quarter earnings report Wednesday after closing bell, reporting earnings of $1.26 per share excluding items on revenue of $6.62 billion. Analysts had been expecting the company to report earnings of $1.18 per share on revenue of $6.7 billion for the quarter. The company’s shares rose as much as 2 percent in after-hours trading after the earnings beat was reported. “We are pleased with the start to our fiscal year, with record results in quarterly revenues, device sales reported by licensees and MSM chip shipments,” said Dr. Paul E. Jacobs, Chair and CEO of Qualcomm, in a statement. “Looking forward, we expect our performance to reflect the continued strong global growth of smartphones, our chipset leadership position and our competitive strengths in 3G/4G technologies and products.”

T = Technicals on the Stock Chart Are Strong

Qualcomm stock has been trending higher over the last few quarters. The stock is currently surging higher and looks poised to continue. 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 between 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

19.99%

0%

0%

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

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

0.00%

18.63%

30.43%

-17.19%

Revenue Growth (Y-O-Y)

10.04%

33.08%

34.95%

23.89%

Earnings Reaction

1.98%*

-3.79%

3.30%

-5.39%

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

* As of this writing

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

-2.48%

-2.68%

-13.30%

-3.12%

-1.76%

Qualcomm has been a relative performance leader, year-to-date.

Conclusion

Qualcomm provides digital communications products to a variety of consumers and companies worldwide. The company has been pleased with a recent earnings release reported Wednesday. The stock has been trending higher and looks poised to continue. Over the last four quarters, earnings and revenues have been increasing which has left investors pleased with recent earnings announcements. Relative to its peers and sector, Qualcomm has been a relative year-to-date performance leader. Look for Qualcomm to OUTPERFORM.

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