Qualcomm (NASDAQ:QCOM) was hustling higher, racing toward $100 earlier this year. Shares stalled at $96.17 in January and you know the rest. The novel coronavirus dealt a devastating hit in February, as the market sold off hard. Qualcomm stock wasn’t an exception to this event, but shares are making a comeback.
The stock recently traded up to $92 earlier this month before pulling back a bit. Qualcomm stock has been on the radar for investors over the years. Now though, it has momentum working in its favor — something that’s not a secret to Wall Street.
The question becomes, can Qualcomm harness that momentum, both in its business and its stock price, long enough to reap the reward?
Valuing Qualcomm Stock
Most stocks will experience a slowdown in growth this year. Those that aren’t will be in demand among investors, as more become willing to pay a premium for stocks with growth.
In Qualcomm’s case, analysts expect revenue to jump 7.5% this year and for earnings to grow 4.2% to $3.69 per share. On the downside, QCOM is not seeing an acceleration in business, like Nvidia (NASDAQ:NVDA) or Twilio (NYSE:TWLO). In other words, estimates have gone down in recent months, not up.
However, growth is growth, and to see Qualcomm growing in an environment rife with volatility is impressive. Besides, estimates for 2021 show pent up demand may be present. Consensus estimates call for 27.2% revenue growth and 58.8% earnings growth.
If achieved, Qualcomm will earn $5.86 per share in fiscal 2021, leaving shares trading at a very reasonable 14.7 times 2021 earnings. Without Covid-19 sweeping through, Qualcomm would have had much better growth this year. But if the economic recovery is strong enough, the back half of 2020 will likely be quite rewarding for Qualcomm too.
Still, Qualcomm is set to benefit from a number of catalysts. Its deal with Apple (NASDAQ:AAPL) netted Qualcomm billions of dollars and got the company as a major partner moving forward. The shift to 5G will also benefit Qualcomm as demand for its chips continues to climb.
As long as the economic recovery remains swift, Qualcomm should benefit from rising optimism about its business, as well as a rising stock market. Along with a low forward valuation and growth in a year plagued by Covid-19, shares also pay out a 3% dividend yield.
At a time where the 10-year Treasury yields just 0.77%, that yield is something to consider.
Trading QCOM Stock
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The charts for Qualcomm stock are very attractive, at least in terms of the technical setup.
Shares gapped down hard in February, cascading from the low $90s down to $60. Near the latter, Qualcomm hammered out a very nice bottom before bouncing higher.
The stock struggled with the 200-day moving average and the 61.8% retracement, bobbing below this resistance area for about a month. Finally, there was a breakout. Shares started off the month with a jump, rallying to a high near $92 before retreating.
We just saw the 20-day moving average act as support, as buyers stepped in and gobbled up Qualcomm stock. If shares can rotate over $92.50 resistance, it puts the 52-week highs in play at $96.17. A move over that puts $100 on the table, a psychologically important level that investors will be aiming for.
Above that and the 123.6% and 138.2% extensions come into play at $103.44 and $108.86, respectively.
On the downside, keep an eye on the 20-day moving average. This metric just buoyed the stock on the dip and I would look for it to again act as support should Qualcomm fail to break out over $92.50.
Below the 20-day and things get interesting. It puts the 200-day moving average and the 61.8% retracement in play — remember, this was prior resistance. I would love a chance to buy a dip down to this level. Below these marks negates the long setup, though.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA and AAPL.
