Just when everyone thought Qualcomm (NASDAQ:QCOM) had solidified its market dominance by ending one battle, two other significant obstacles appeared yo hamper Qualcomm stock.
The intensified trade war with China threatened growth in its largest market. Moreover, an FTC ruling that Qualcomm violated antitrust law wiped out most of the recent gains in QCOM stock. However, even though uncertainty remains, Qualcomm’s problems are a reason to readjust expectations rather than positions.
After Apple (NASDAQ:AAPL) settled its ongoing lawsuit with Qualcomm, QCOM surged by more than 50% in less than two weeks. After that move, I figured it would see a pullback.
The renewed trade war and the FTC’s antitrust ruling against QCOM made me even more correct than I had expected. Those events took QCOM back to the $65 per share level by late May. It has since recovered to just under $70 per share. Still, it remains well below the $90 per share peak achieved after the Apple settlement.
Uncertainty and Qualcomm Stock
Of course, Qualcomm has begun the process of appealing the ruling. For this reason, Qualcomm wants to delay the enforcement of the antitrust decision. LG (OTCMKTS:LGEAF) wants it enforced immediately for fear they will have to sign another deal that they perceive as unfair.
Investors should also question if their recent deal with Apple represents a true “settlement.” Apple has begun discussions to buy Intel’s (NASDAQ:INTC) German modem unit. This is important because this unit makes up the former Infineon, a company that had tried to compete with Qualcomm. Buying this unit could make it possible to develop the needed chipsets internally.
For these reasons, I understand the recent sell-off. Most profit forecasts revolved around the company holding more pricing power. Additionally, we know Apple has tried for years to free itself from dependence on Qualcomm. If Apple develops a comparable modem chip, QCOM will suffer.
The Long-Term Case for Qualcomm Stock
However, despite the challenges, I remain bullish on Qualcomm.
First, the present and the future of wireless still depend on Qualcomm. Much like Microsoft (NASDAQ:MSFT) had a stranglehold on PC operating systems in the 1990s, Qualcomm dominates the market in the chipsets that make smartphones possible.
Even though Apple fought for years to not pay Qualcomm’s licensing fees, the need for the company’s modem chips forced the company to settle. Moreover, the fact that Intel struggled to adequately compete may also mean that Apple’s attempt to develop these chipsets internally may not succeed.
Right now, investors can buy such dominance for only 13.3 times forward earnings. Profit growth will stagnate this year. Admittedly, earnings could also take a hit if the government starts enforcing the antitrust settlement immediately. However, analysts project a 37.1% increase in earnings next year. They also predict annual profit growth will average 27.05% per year for the next five years.
Still, even if the government enforces the settlement now, investors in QCOM stock should consider what I see as a forgotten and underrated dividend. Its current annual payout of $2.48 per share yields almost 3.6%. Moreover, this payout has consistently risen since the company began dividend payments in 2003. Investors should also note that these increases continued, even in recent years when the dispute with Apple hampered the growth of Qualcomm stock.
Concluding Thoughts on Qualcomm stock
The trade dispute and the FTC ruling change the expectations surrounding QCOM stock, but they should not change the buy case. Yes, the recent events return QCOM to much the same position it held when it fought its costly dispute with Apple.
However, investors need to remember that at least for now, we have a lucrative monopoly that should soon benefit from the technological quantum leap. Those who buy now pay a forward multiple of 13.3. Moreover, QCOM has become underappreciated as a dividend stock.
It yields almost 3.6% and has maintained close to an annual track record of payout hikes for the last 16 years. The long-time dispute with Apple did not slow these increases, the more recent challenges likely will not either.
Qualcomm stock has brought a great deal of frustration to investors. However, those that let emotions get the better of them could miss out on one of the more significant growth and income equities in today’s market.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
