To be honest, I’m still kicking myself for not buying it at the start of 2019 at $47.46 before it exploded to a high of $94.11. Those gains came thanks to the coming 5G boom, the fact that it won its litigation battle against Apple (NASDAQ:AAPL), and Q4 earnings.
Then, Morgan Stanley crashed the party and sent the stock to a low of $79.20, dropping its rating to “equal weight” from “overweight.” However, it still raised its price target to $90.
“We think drivers in 5G, incremental investment capabilities from Qualcomm’s agreement with Apple, and confidence in QTL [Qualcomm Technology Licensing] sustainability are now appropriately valued in light of other business risks,” said Morgan Stanley analyst James Faucette.
But don’t be too quick to write off QCOM. After dropping $79.20, the Qualcomm stock has become an oversold bargain at its 50-day moving average with sizable, near-term catalysts.
In my opinion, QCOM is a strong buy on the pullback and could hit $100 by mid-2020.
Temporary Weakness Will Lead to Long-Term Rewards
In its most recent quarter, QCOM posted adjusted fiscal-fourth-quarter EPS of 78 cents, which easily beat analyst forecasts for 71 cents. Revenue of $4.8 billion was in line with expectations for $4.76 billion. Its forecast is in-line with expectations, as well.
For the current quarter, it expects sales of between $4.4 billion and $5.2 billion, and EPS of 80 to 90 cents. Analysts on average are looking for EPS of 81 cents on sales of $4.83 billion.
“We exit the fiscal year having successfully executed on our strategic priorities: helping to drive the commercialization of 5G globally, completing a number of important anchor license agreements and executing well across our product road map,” said CEO Steve Mollenkopf. “Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020.”
5G Is a Substantial Catalyst for Qualcomm Stock
The 5G boom is upon us. Cowen & Co.’s Colby Synesael says “A revolution is coming.”
He believes 5G will usher in this revolution and have a “game-changing” impact on society.
Qualcomm says, “The 5G vision is a unifying connectivity fabric for a diverse range of services and devices, expanding mobile technology from more than 5 billion human to trillions of things, disrupting virtually every industry.” It could help produce up to $12.3 trillion in goods and services. “The global 5G mobile chain alone will generate up to $3.5 trillion of economic output and support 22 million jobs.”
Plus, one of its biggest catalysts is Apple. After ending two years of litigation with Apple, Qualcomm will provide 5G modems for Apple 5G iPhones. In addition, QCOM just expanded its 5G capability across its entire family of Snapdragon 8, 7 and 6 series mobile platforms for smartphones and other devices.
For any analyst to say this is priced into the stock is wrong, in my opinion.
Even Canaccord Genuity’s T. Michael Walkley just raised his price target on QCOM stock from $87 to $101 with a buy rating. He believes 5G smartphones will offer the company the opportunity to “sell 50% more dollar-chip content per device than the prior 4G generation.”
Qualcomm stock offers opportunity “primarily on the strength of its leadership in 5G technology.”
Bottom Line on QCOM
The pullback in Qualcomm stock is an opportunity to buy before the 5G boom hits. With patience, I believe the stock could run to $100 a share by mid-2020. With plenty of growth in store for 2020, there’s plenty to like about QCOM.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.