Qualcomm (NASDAQ:QCOM) is amidst a patent legal fight with Apple (NASDAQ:AAPL), so it has had its fair share of whipsaw moves lately. And 2018 had macro headlines that made trading QCOM even more challenging than usual. The stock had three 25% moves in a seesaw and ended the year down.
But if you ask the company, they are not worried. Management sounds confident in their outlook, and they have good reason to be so. On the legal front, they have had good victories, most notably and recently in China. The company expects the whole process to end this year. If we are to believe them, the AAPL conflict is not an issue.
Of course this is only their side of the story … but Qualcomm is also a formidable company with proven management. So they will succeed with or without the iPhone. Looking forward, QCOM stock is focusing on the launch of 5G. This is the next exciting development that is likely to have tremendous opportunities for the providers.
Consumers have adopted the online consumption model. We prefer to stream our content and transact online. Experts expect 2019 to be the 5G introduction, but the financial impact on companies like Qualcomm won’t ramp until late into the year and into 2020.
Meanwhile, China remains a worry as the macroeconomic worries there pile up. But QCOM management sees its market as a global one, meaning companies in China like the ones in the U.S. will target the whole planet as a potential pool of clients.
Fundamentally, QCOM has their foot in the right places. They had a few announcements during the Consumer Electronics Show in Las Vegas boasting about their involvement in the automotive sector. Autonomous driving and connectivity is ramping and 2019 will bring many exciting headlines there.
So Is It a Good Time to Buy QCOM Stock?
Yes, for those who invest for mid- and long-term. So far it has held up similarly to AAPL stock, down 16% in 12 months. This is a testament to the conviction of its fans.
The analysts are split between buy and hold recommendations. And Qualcomm stock is now trading at the low of their price target range. So they expect more upside to come.
There is also short-term technical reasons to hold QCOM stock. The daily chart shows that the trading range is tightening, with lower highs and higher lows. This build energy and has to relieve itself with a big move. Since markets have found footing, there is a good chance that there will be a burst higher in Qualcomm.
There will be resistance at prior pivot points like at $58.30 per share, but buyers will want to take it to $63 per share to close an open gap. Not all gaps fill, but this one has a good chance. This would be simply reverting back to its mean.
The upside of corrections is that the dividend yields become more attractive. QCOM rewards its stock holders with a 4%-plus dividend yield so they get paid while they wait. A strong dividend helps the stock hold up if equities stumble again on macro headlines.
To that, from here and for immediate upside it will need the help of the general markets. Stocks have just had a correction and are in the process of digging themselves out. Last week started a strong rally but we barely just got back above the February lows in the S&P 500. Nevertheless, it is a powerful push off the bottom led by momentum stocks like Netflix (NASDAQ:NFLX).
Investors were emboldened by Federal Reserve Chairman Jerome Powell last week. He assured Wall Street that he is watching the data and that his monetary strategy is not set in stone. The Fed will throttle their rate hikes based on the data and this includes perhaps changing their management of the balance sheet.
We are still in headline mode and these can cut in both directions. We still have many potential worries like the U.S. and China are meeting this week to mend tariff fences. Also the U.S. political rhetoric is a mess, so I have to leave some room for error.
Therefore, I don’t buy all my shares at once just in case equities dip again one more time. We do have a market-wide rally coming, but there might be one more leg lower and it will be headline-dependent.
Click here and enjoy a free video and more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
