The chipmaker Qualcomm is the definition of “GARP,” the acronym money managers use for the phrase “growth at a reasonable price.” Qualcomm has just about everything you want in a stock. Innovative? Check. High profit margins and returns on equity? Check, check. Growth? Absolutely — it’s on target for EPS gains of 16.95 this year and 10.7% in 2013, and estimates are holding in well at a time in which many tech companies are seeing their estimates coming down.
Value metrics? No issue there, either. The stock is trading at a forward P/E of 13.2, and its trailing P/E of 16.6 is far below its five-year average of 25.3. As a kicker, QCOM yields 1.8%. And all of this comes without exposure to the weakness in the PC supply chain.
Despite these positive attributes, shares have shed 11.5% since reaching a high of $68.59 on March 26. The primary issue weighing on the stock is the recent weakness in handset sales. And with earnings coming up next week (July 18) and Apple’s earnings due out on July 24, investors aren’t taking any chances.
However, the important thing to remember here is that mobile telecom is one of the fastest-growing industries in the world, and Qualcomm – whose chips are used in the iPhone 4, iPhone 4S and the vast majority of phones that run on Android — is one of the best-positioned companies to take advantage of this trend. And as Raymond James pointed out in continuing to recommend the stock last week, the company continues to gain market share.
All of this indicates that the recent sell-off in QCOM is a blip in a much larger longer-term story. Indeed, the median analyst price targets is $72, about 30% above current levels. It has paid to buy this stock on weakness throughout the past decade, and right now the evidence suggests that’s still the case. Take advantage of any earnings-related volatility in the second half of the month to build a long-term position in Qualcomm.