Qualcomm (NASDAQ:QCOM) stock has rewarded its investors a few times in the last year. It has been setting higher lows since correcting near Christmas, so its trend has been the bulls’ friend. But therein lies an opportunity that QCOM stock may be changing levels to finally take out the all-time high, which it reached during the dot-com bubble.
Year-to-date QCOM has done well, and it’s up 48%. That’s more than double the S&P 500’s performance. But there is more potential locked into it. I have shared two bullish opportunities on QCOM stock in the past year and they have both played out well according to the technicals. So I expect that this opportunity too will have a decent chance of rewarding the bulls, if macroeconomic headlines allow it.
QCOM stock is sensitive to headlines from the ongoing economic war between the U.S. and China. Although the two sides are cordial these days, things can change on a dime. In the end, the race to 5G dominance will prevail as neither leading nation wants to fall behind. Soon enough they will get back to being busy with paving the way for the migration from 4G to 5G technology.
Fundamentally, QCOM sells at a 29 trailing price-to-earnings ratio and a 4.5 price-to-sales ratio. So while this is 40% more expensive that say Apple (NASDAQ:AAPL), QCOM is not bloated. The stock also pays a decent dividend. So long-term investors are profitable in the long run.
In February, QCOM fell below $50 per share. Clearly not everyone is comfortable owning the stock. But it is now 70% higher, so whatever spooked investors then has been resolved. Nevertheless, there are still macroeconomic uncertainties. The only difference is sentiment — and perhaps public expectations of future business.
Perhaps QCOM is benefiting from the AAPL effect. That stock is at its highs and may be providing a tailwind to Qualcomm stock in sympathy. In addition, the aura of the 5G change brings optimism. But at this point there might be too much enthusiasm over these two advantages. When expectations are so high, it becomes easy to disappoint.
QCOM Bulls Are in Charge
In two days, Qualcomm will report earnings. And those events bring lots of guessing. Because for the short term, investor reactions to the earnings events are binary. But for this round of reports, Wall Street has been easy on companies who have profitability on their side. Punishments have hit companies that have big operating losses like Pinterest (NYSE:PINS).
Qualcomm’s valuation is reasonable so it is not an obvious target for a beating, unless management delivers a bad report.
Technically, the bulls have had the momentum both this year and also on the very long-term perspective. The buyers of QCOM stock have managed to exceed the major top that occurred during the summer of 2014. Going above it now means that the bulls surpassed a major resistance level. Now it is important to stay above it. As long as QCOM stock is higher than $80 per share then the bears are at a disadvantage.
Shorter term there is a danger zone around the failure levels from May. QCOM failed into a 24% correction after failing at the $86 per share ledge. As the stock approaches $86 now, the level becomes a tremendous headwind. The onus is on the bulls to overtake it and start using it as forward support. A positive earnings reaction could be the catalyst that it needs to burst right through it and start chasing the dot-com all-time high.
The analysts who cover Qualcomm stock are somewhat shy with their ratings. So maybe a confident management call this earnings event would sway a few of them to raise their ratings to “buy” from “hold.”
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. Join his live chat room for free here.
