Qualcomm, Inc. (QCOM), is the world’s largest supplier of smartphone chips, a $122 billion technology giant. It boasts a robust army of high-value patents that it licenses out to heavy-hitters like Apple Inc. (AAPL), Samsung (SSNLF), and LG Display Co Ltd. (ADR) (LPL).
Yet QCOM stock has been a lackluster performer in 2014, with its 2% loss lagging the S&P 500 by more than 13 percentage points.
In light of its sluggish year, QCOM stock now trades at a forward price-to-earnings ratio below 13 — making it more conservatively valued than peers like Broadcom Corporation (BRCM), Intel Corporation (INTC), and Texas Instruments Incorporated (TXN).
Oh, Qualcomm also pays a nice little dividend, with the stock yielding 2.3% annually. QCOM’s 11-year record of dividend growth should give you an idea of the quality of its payout.
A dirt-cheap valuation and quality dividend are more than enough to pique my interest in a stock, but it’s especially intriguing in the case of Qualcomm because the company’s current situation is so uniquely compelling.
What Makes Qualcomm So Unique
QCOM stock was recently reaffirmed as an “outperform” at Cowen and Company in November; the research firm cited Qualcomm’s confidence that it would collect royalties on “substantially all LTE devices” sold in China. Also indicating at its Analyst Day that a regulatory investigation by Chinese anti-monopoly officials should end soon, QCOM will then be able to operate freely in what has become the world’s biggest economy.
But one part of Qualcomm’s strategy that is seldom talked about in QCOM stock analysis is Qualcomm Ventures, the investment arm of the wireless leader. Qualcomm Ventures helped to fund companies like eBay Inc‘s (EBAY) PayPal, internet of things player InvenSense Inc (INVN), and the navigation app Waze.
This follows an increasing focus by technology leaders in the 2000s to gain exposure to up-and-comers in their own industries. The venture capital arm of Google Inc (GOOG) has been conspicuously active in recent years (Google invested in Uber at a valuation of $3.5 billion — Uber’s current valuation is $40 billion), and Yahoo! Inc.‘s (YHOO) early investment in Alibaba Group Holding Ltd (BABA) recently helped send YHOO to record highs upon the BABA stock IPO.
Qualcomm made an awesome investment through its venture capital arm back in 2011, when it invested in the Asian smartphone company Xiaomi at a $1 billion valuation. Since then, Xiaomi, which only released its first phone in 2011, has ballooned into the world’s third-largest smartphone-maker. Xiaomi sought additional funding last month at a whopping $50 billion valuation.
Not only is QCOM stock poised to rise with the burgeoning popularity of the Xiaomi brand, the company has essentially doubled-down on its lucrative Xiaomi bet, as Qualcomm also provides the chips behind Xiaomi phones.
With a stellar valuation, a nice dividend, regulatory concerns abating and an allegiance with arguably the hottest new smartphone-maker on the planet, QCOM stock is a screaming buy.
As of this writing John Divine owned shares of AAPL stock, GOOG stock, GOOGL stock and was long Jan 2016 INVN $25 call options. You can follow him on Twitter at @divinebizkid.