The world will go on, whether investors realize it at the moment or not. In a market where folks are selling first and asking questions later, Qualcomm (NASDAQ:QCOM) has not been an exception. Now sitting 33% below its year high — Monday’s carnage included — Qualcomm stock is drawing attention as a possible buy.
That attention comes a week after the chip maker announced a dividend hike, increasing its annual payout 4.8% to $2.60 per share. That hasn’t mattered though, with shares getting taken to the woodshed.
Yielding 3.85%, Qualcomm stock has again become an income play. So, too, has Broadcom (NASDAQ:AVGO), which now yields over 5.6%.
Broadcom shares are down 41% in the past month, compared about half of that decline shown by the iShares PHLX Semiconductor ETF (NASDAQ:SOXX). The company missed on earnings and revenue, but management’s fuzzy outlook on the future likely contributed to some of the decline, particularly following its March 12 earnings report. President and CEO Hock Tan had this to say:
“The fundamental semiconductor backdrop has been improving, and we did not see any material impact on our businesses due to COVID-19 in our first quarter. However, visibility in our global markets is lacking and demand uncertainty is intensifying. As a result, we believe it prudent to withdraw our annual guidance until visibility returns to pre COVID-19 levels.”
Along with pulling its full-year guidance, Broadcom forecast Q2 sales of $5.55 billion to $5.85 billion, missing estimates of $5.95 billion.
You might be wondering what this has to do with Qualcomm, but it’s rather obvious. Both companies supply components for smartphones (among other things) and both supply for Apple (NASDAQ:AAPL). Both will also see a pinch, as global smartphone demand takes a hit.
I don’t know how Qualcomm will do when it reports next month or what management will say about guidance. Remember though, Apple cut its current-quarter outlook too. So I would suspect Qualcomm has a bumpy couple of quarters on the way.
According to consensus estimates, analysts expect earnings of $4.13 per share. That’s down 6 cents per share over the past week, with analysts shaving 2 cents per share off each of the next two upcoming quarters.
I think we should probably cut estimates a bit more than that. Let’s knock that down to $3.75, off about 50 cents per share from a month ago. Let’s assume shares trade at 16 times this year’s estimates. 16 times $3.75 per share gets us to $60. That also gives us a 4.33% yield.
Even if Qualcomm’s business takes a short-term hit, it’s still doing fine, and it will be fine in the future. Perhaps the impact is just one to two quarters, maybe it’s two to four quarters. We don’t know yet.
Right now, there are a lot of unknowns as it relates to the markets and to the coronavirus. China, South Korea and Japan have shown that it’s something that can be beat. America is taking action and with any hope, we too will be “getting back to normal” in the next 20 to 60 days. Hopefully the world is too, for that matter.
If not, then there’s likely more selling pressure in store for Qualcomm stock and others. Some stocks — like Visa (NYSE:V) — are more exposed to the drastic economic pause. We’ll find out if Qualcomm is too, but right now it feels like this one is being thrown out with the others.
Trading Qualcomm Stock
The $3.75 per share estimate and 16x multiple may seem arbitrary to many, particularly fundamental investors. In a way, it is. I don’t know if $3.75 is aggressive or conservative at this point. I don’t think anyone really knows. About 10% below consensus estimates and 11.5% below where those estimates were a month ago, it feels conservative. And conservative seems like the right approach at this point.
But what do the charts say?
Above is a four-year weekly chart highlighting Qualcomm stock and the stock’s volatile 15 months. Shares have cratered right through uptrend support and the 50-week moving average. It now sits right on the 100-week moving average.
Should shares come under further pressure, the prior breakout zone near $62.50 could come into play. Further, the 200-week moving average sits down at $60, although admittedly, this level hasn’t played much of a role over the past few years.
Below $60 and perhaps $50 could be on the way. With the VIX above $70, anything is possible. But nibbling Qualcomm stock between $60 and $62.50, down about 37%, is worth a shot.