Don’t Give Up on Qualcomm, Inc. (QCOM) Stock So Easily

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Qualcomm, Inc. (NASDAQ:QCOM) stockholders have tons of reasons to be frustrated. With QCOM stock down 18% year-to-date, while falling 15% over the past year, trailing the S&P 500 index in both spans, the San Diego-based chip giant has been a huge let down.

Don't Give Up on Qualcomm, Inc. (QCOM) Stock So Easily

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Adding salt to the wound, during that span, shares of Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) have skyrocketed, driven by a combination of stronger chip demand for things such as gaming to mining for cryptocurrency, which suggests QCOM should rethink its own growth strategy.

We can debate Qualcomm’s deficits and how it can fix them, which I will cover. But for retail investors who own QCOM stock, it would be a mistake to sell out now.

Patience Needed With QCOM Stock

The optimal selling periods — if you believe in “buy low, sell high” — have come and gone. Now is the time to lower your cost basis and collect one of the better yields in the sector at almost 4.5% annually. Indeed, the stock — down 30% and 15% in the respective three years and five years — has been a massive disappointment. There’s no debate there. But Qualcomm, the company, has operated far better than QCOM stock.

Not only has Qualcomm beaten Wall Street’s earnings estimates in twelve straight quarters, it has only missed on revenue three times during that span. Good luck finding another large-cap stock in any sector that has put up that type of record. In Wall Street’s mode of “what have you done for me lately,” there’s the concern about Qualcomm’s numerous legal battles, notably the company’s royalty dispute with Apple Inc. (NASDAQ:AAPL), among others.

But QCOM, which filed a countersuit against Apple, claiming Apple has infringed on six of its patents, received a small victory Tuesday when the U.S. International Trade Commission (USITC) announced it would launch an investigation into the complaint. This doesn’t guarantee a victory for QCOM, but it’s nonetheless an important first step in the process of ultimately putting this issue to rest.

“The USITC will make a final determination in the investigation at the earliest practicable time,” reads the notice. “Within 45 days after institution of the investigation, the USITC will set a target date for completing the investigation.” In other words, patience is key with QCOM stock. And even with this headache, which Qualcomm has a strong chance of winning, management doesn’t expect the business — despite the bottom-line hit to Q3 — to be disrupted.

Where Qualcomm Stands Today

In the most recent quarter, it posted 83 cents in earrings per share, which topped Street forecast by 2 cents. And while third-quarter revenue did drop 12% year over year to $5.03 billion, it still surpassed consensus by roughly $42 million. On a segmental basis, $1.2 billion in revenue came from the technology licensing business, while Qualcomm’s CDMA technologies (QCT) business is showing no signs of slowing down, impressively even in China where competition is growing rapidly.

The segment posted 5% year-over-year rise in revenue, reaching $4.1 billion, which also grew 10% sequentially. This means Qualcomm has enough growth drivers to offset weakness in the QTL business until the unit stabilizes. What’s more, the company ended the third quarter with $37.8 billion in cash and equivalents, which is a sizable war chest that can be used to fuel growth, buyback QCOM stock and increase the yield over time.

It’s also encouraging that management continues to speak confidently about the company’s ability to close the $47 billion acquisition of NXP Semiconductors NV (NASDAQ:NXPI) later this year. This deal should give QCOM an expanding footprint in high-growth areas such as Internet of Things, automotive, security and networking.

Bottom Line for QCOM Stock  

The company’s legal fights have taken a toll on its earnings and QCOM stock hasn’t delivered the returns investors hope for this year. But it’s still tough to ignore Qualcomm’s long-term potential when factoring the company’s massive patent portfolio, the bulk of which is in fast-growing industries such as mobile and 4G, 5G and next-generation wireless technologies.

From a risk-versus-reward perspective, Qualcomm’s fiscal 2018 forward multiple of 15, versus a price-to-earnings ratio of 19 for the S&P 500 index, suggest little to no growth. Plus, when adjusting out its massive cash stockpile, that multiple is closer to single digits. Now’s the time to own QCOM, not sell it.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/qualcomm-inc-qcom-stock-dont-give-up/.

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