Qualcomm, Inc. (QCOM) has been one of the most controversial companies in the big tech family over the last year, with its stock falling nearly 27%. The chipmaker, which both licenses its technology and sells the chips that power smartphones, has quickly gone from a double-digit growth company to a double-digit decliner on the revenue front.
As a result, not too many investors are rushing to buy Qualcomm stock right now.
But for five particular reasons, they should be.
A Strong Closing In 2015
Qualcomm’s problem centers around licensing rates in key countries along with increased competition by the likes of Intel Corporation (INTC) and Samsung. Collectively, this has caused QCOM’s revenue and income to crumble.
However, Qualcomm had a strong end to 2015 that will eventually translate to revenue and profit. QCOM struck a supply deal with both ZTE and Xiaomi. The pair of companies will make smartphones using Qualcomm’s patents, and pay QCOM royalties in return.
Eventually, these two catalysts will create new revenue channels for Qualcomm.
A Big Win to Start 2016
In addition to QCOM’s two big wins late last year, Qualcomm formed a licensing deal with Lenovo Group Limited (ADR) (LNVGY), which is a massive 3G and 4G smartphone maker that shipped more than 70 million units last year.
While Qualcomm’s royalty rates with Lenovo will be lower than in years past, thanks to its settlement last year with Chinese regulators, it will still create significant revenue given the pure size and scale of Lenovo.
QCOM Is Cheap
Because of Qualcomm stock’s 41% decline from its all-time high, the tech company is now really cheap. Qualcomm has a market capitalization of $76 billion and $30.6 billion in cash and marketable securities, thereby giving it a net valuation of about $45 billion.
With QCOM expected to earn $4.10 per share this fiscal year, Qualcomm stock is trading well under 8x expected EPS on a net valuation basis. That makes Qualcomm stock one of the cheapest in big tech, if not the cheapest.
Dividends That Continue Tto Rise
QCOM recently hiked its quarterly dividend by 10%, now paying $0.53 per quarter. What that move means is that QCOM now pays a forward yield over 4.1%.
If we look back over the last 10 years, Qualcomm stock has been one of the most shareholder friendly securities in big tech. During that span, QCOM has hiked its quarterly payout from $0.12 to now $0.53, an increase of over 340%. The best news is that these hikes don’t seem to be ending anytime soon.
Buybacks Are Significant, Too
During Qualcomm’s last quarter, it spent more than $2 billion on share buybacks. Over the last 12 months QCOM has spent $10 billion on buybacks as part of a $15 billion buyback plan it launched last March.
Given the losses in Qualcomm stock, investors might assume that QCOM’s buyback plan was useless, and did not serve its purpose. However, that is not true.
Over the last year, Qualcomm stock has fallen 24.7%, but its valuation has declined 32%. That gap is caused by share buybacks, and suggests that had QCOM not bought back any stock, then losses in Qualcomm would have been 32%. The best news of all is that selling in Qualcomm stock has finally subsided, with the chipmaker up 2.2% in 2016.
When you consider that QCOM shares have greatly outperformed the Nasdaq in 2016, coupled with its big buybacks and dividends, along with the deals it recently won, there are more than a few reasons to like Qualcomm stock.
Brian Nichols owns shares of Qualcomm stock.
