Remember when investors were focused on whether the 5G revolution would live up to its reality? Yeah, so do I. And Qualcomm (NASDAQ:QCOM) is surely wishing the only question investors would be asking is if Qualcomm stock was overvalued at $88 per share.
In early March, Piper Sandler analyst Harsh Kumar initiated his coverage on Qualcomm stock. At the time (just two weeks ago), he gave the stock a “neutral” rating with a price target of around $80, but was bearish on the stock.
His expectation was that Qualcomm’s stock price seemed to have properly factored in the growth it would get from 5G smartphone sales.
I still believe that 5G is going to set up Qualcomm stock for some healthy gains. However, the stock probably has further to fall before that happens.
What a Difference One Month Makes
One month ago, the market was hitting new highs almost every day. Today, investors are fearful. Businesses are, or will be, closing. Consumers are, or will be, unemployed for reasons that have nothing to do with a normal economic cycle.
The market is selling anything, at any price, that gets in the way of that narrative.
And Qualcomm has been no exception. From the time the market closed on Friday, March 13 to the time the market closed on Wednesday March 18, Qualcomm stock has plummeted over 20%. That takes the total loss for 2020 to over 34%.
Qualcomm Stock May Have Further to Fall
Right now Qualcomm stock is a falling knife. And if history is any lesson, there may be some more pain to come. In the 18 months covering the dot-com bubble burst through the events of Sept. 11, 2001, Qualcomm fell from a price nearing $100 per share to under $13.
It took the stock over five years to get back up over $50 per share.
Then, the financial crisis took shares back down. But at that point, Qualcomm found its footing at around $33 per share.
So the question is how far will Qualcomm stock fall? And until the market provides more clarity on that issue, it’s probably best to stay away.
Misery Loves Company
At times like these, it’s important for investors to take a step back and look at the bigger picture. And when we do that, we see that the entire semiconductor sector is under pressure.
As InvestorPlace’s Chris Lau recently wrote, semiconductor stocks are usually the first stocks to drop sharply. To that end, the PHLX Semiconductor Index is down over 35% for 2020. This means that Qualcomm has not dropped any more or less than other semiconductor stocks.
This is not to try to pretend this is not a time for concern. But investors need to understand that as bad as things are, there will be a time when the market will stabilize. And when it does, there will still be a demand for 5G technology, and the products that result from it.
When Should Investors Buy Qualcomm Stock?
Like many of you, I’m trying to stay informed, but paying attention to the quality of information I consume. Some of the brightest financial minds that I follow are saying the market may continue to slide until there is better news on a breakthrough in treating the coronavirus from China.
Unfortunately, that is looking to be some time in the future.
Investors have to make their own decisions, but right now, Qualcomm is offering an annual dividend of $2.48 — and it just recently increased that payout. While that may not be a reason to jump on the stock now, it may give you a reason to make sure the stock is on your watch list.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris did not hold a position in any of the aforementioned securities.