Qualcomm (QCOM), a leading producer of semiconductor chips for cell phones, has been hitting new post-2000-mania highs left and right, and is up 4% YTD. Yet even with those new highs, QCOM stock still trades at around 14 times forward earnings. Compared with the 15.5 forward p/e of the S&P 500, does that make QCOM stock a bargain buy right now?
Let’s dig into the fundamentals.
The company reported strong earnings in January, and QCOM stock spiked in February on those results along with an uptick on guidance numbers for the full year. Even better, on March 4, QCOM boosted its dividend 20% to 42 cents per share, and increased its stock-buyback program by $5 billion.
Qualcomm is known for farsighted, investor-friendly management, extensive R&D and rock-solid finances. In fact, the company also sports no long term debt—my kind of balance sheet!
However, at the current share price, QCOM’s near-term appreciation potential looks modest. To bet on a sharp rise from here, you would have to believe that earnings will surge even faster than the 13% increase Wall Street is expecting in 2014.
Frankly, I consider that a stretch, with the growth curve for smartphone sales clearly decelerating in the United States and Europe.
Accordingly, the shares rate a hold for now. But I’d be happy to accumulate QCOM on a pullback to $71 or less. At that point, I project that you could look forward to a total return (dividends plus price gain) of at least 15% in the year ahead.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.