QUALCOMM, Inc. (NASDAQ:QCOM) — Buyers appear to be targeting QCOM stock. According to Benzinga, on Wednesday, the QCOM July $72.50 calls traded 2,960 contracts above the ask price of $0.88, and rumors circulated of a possible deal with Ambarella Inc (NASDAQ:AMBA).
I must emphasize that this is only a rumor and should not be the sole reason for buying shares, but fundamentals and technicals are also encouraging for a short-term trade.
This developer of advanced wireless broadband technology increased revenues by 7% in fiscal year (FY) 2014 (ended in September). And while S&P Capital IQ estimates sales will be flat this fiscal year and up 6% in fiscal 2016, its analysts note smartphone growth in emerging markets should support the company’s high-margin royalty business.
They anticipate earnings of $4.85 per share in FY 2015 and $5.35 in FY 2016, with dividend increases and share repurchases increasing shareholder value. The company currently pays an annual dividend of $1.92 for a forward yield of 2.7%.
Capital IQ has an $80 target price on QCOM stock. This is based on a forward P/E multiple of 15, which is below the 16.5 multiple for its competitors, making it undervalued versus its peers.
Technically, QCOM stock appears to be in the process of breaking from a downtrend that began in July at $82. Its 20-day moving average has crossed over its 50-day moving average, and Wednesday’s close penetrated the bearish resistance line, giving a short-term buy signal. The next barrier for a major breakout is the 200-day moving average, now at $72.
Traders should buy QCOM stock under $72 with a short-term target of $80 for a return of at least 11%. A close stop-loss order at $68 is appropriate, since if the stock reacts to new buyers it should move rapidly to take out the resistance at $72.
