Technical Opinion
Qualcomm is an innovative manufacturer of competitive wireless telecommunications products that are used in the smart phone and tablet device market today, among other things. The company applies long term strategic planning and has a very strong R&D strategy, backed by a huge R&D budget. This ensures staying on the cutting edge of technology and being competitive. The stock went down a lot during 2015, this was due to uncertainty over regulatory issues in China, which is the main market for the company. It was kind of like the situation in which Volkswagen AG is today, over the emissions scandal, a stock which is set to recover once the legal fines are finalized.
Due to corporate size, successful overall management and strategic planning, these large companies have tapped some very large markets and their future remains very positive. Qualcomm’s stock fell because of all these concerns and fears over competition pushing the company down in terms of profitability. But the company’s strategy is planned much longer term than these worries, and therefore the recent sell-off was merely a panic driven move. Falling all the way from $77 down to the low $50s was an extreme sell-off for a company of this kind, way overdone. Now traders and investors are looking to play this stock in neutral to bullish strategies, aiming to go sideways to higher in the near to medium term.
Technically, there is a risk that these traders could be wrong, in case the markets switch to bear mode in October 2015, but beyond, that the underlying direction for this stock is up. Long term investors are willing to buy this stock through a cost averaging approach, buying a number of shares every few months, at whatever price the market offers them.
The stock will gather momentum once above its 50 day moving average, but the technical picture is that the sell-off is already done, and there’s no margin for any further declines, unless in the case of a bear October scenario. As long as markets go sideways or higher, the stock will follow steadily, with its 0.84 Beta correlation coefficient. Long term underlying direction is up.
Qualcomm’s stock appears to have reached a selling climax, hinted by the widely diverging directional lines of the ADX indicator. Which means that the worst is likely over for the company and investors have the confidence to buy this stock again. Longer term, the stock is much stronger than it appears on the chart, with an actual value being close to $100 looking 3 to 5 years down the line.
Fundamental Analysis
Investors and analysts have diverse opinions on Qualcomm but they are mostly positive. Beyond these opinions however, which hardly matter to serious investors, there is the more fundamental opinion. This fundamental opinion is that the growth market in China, which Qualcomm is targeting very successfully is all about 3G and 4G microchips, as well as various types of auto-mobile chips, which make these products more competitive in the way they work. Many Chinese manufacturers use Qualcomm’s chips in their products, these products have to do with both the domestic consumer market in China as well as the global export market.
Growth and profitability potential is great in this case, massive in fact, not just because China has a lot of room for growth, but because Qualcomm knows how to handle all the stiff competition it faces. The future for both Apple and Qualcomm is geared towards smart home and smart car technologies, towards making living and driving more energy efficient etc. Technology and innovation achieved by Qualcomm can take the challenge and deliver in these fields, without losing ground to competition. In terms of long term growth and profitability the company will continue with ups and downs, but with massive potential for success looking 3 to 5 years down the line. Actual value for Qualcomm’s stock based on projected earnings and overall growth is very close to $100. This means that the stock will recover from today’s low $50s levels, and it will keep recovering from each and every drop on the way back up, which makes it an ideal long term investment choice, for serious investors.
Even the $100 figure is a conservative one when looking at a 5 year period, but it’s a basic, very realistic figure. It is possible for the stock to actually end up overshooting the fundamental valuation and go as high as $180 to $200 during this 5 year outlook. As long as the Chinese economy is doing okay there will be no problem for Qualcomm or any other key company in the technology field such as Apple. Be careful not to confuse the Chinese stock market as an indicator for the Chinese economy, in the case of China, stock market and economic growth are actually two separate things. This is because the stock market is deeply decoupled from the country’s economy, and therefore stock market analysis cannot be used to make predictions on the economy in the way that we can do for the US economy.
The consumer market is an one way game for both Apple and Qualcomm, the auto-mobile market alone is worth billions and Qualcomm is a key player here because it has the know-how in developing and manufacturing microchips the auto-mobile market needs, and it can even take things further, which very few of its competitors actually can. Qualcomm is bound to rise overall, even in a sideways market, and pull up from any short and medium term lows. It is a long term buy, for the next 5 years, up to the price around $120-$30 (adjusted for 5 year average inflation cost). Only if it rises way above its today’s $100 valuation, too fast, it will be time to liquidate, such as $180 -$200 during this 5 year period.
