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Qualcomm: A Quality "Call"

08/13/2004 12:00 am EST


Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

"The stocks that are establishing themselves as the new leaders-while the market has been correcting- are exactly the stocks that I want to be long when the market turns," says trading expert Bryan Perry . Here, he looks at a favorite-Qualcomm.

"The stocks that perform the best during the coming weeks will likely be the ones that fund mangers trust and will buy on the way up. If we do get an oversold rally in the next couple of weeks, the stocks that will get the most out of it will obviously be those companies that beat estimates handily and boosted guidance considerably. No nickel-and-dime stuff; I'm talking about big upward revisions in revenues and earnings in stocks that are in industries with high barriers to entry. Very few stocks fit this description, but there is a sweet spot and that's the basis of our latest pick.

"We recommend going long Qualcomm (QCOM NASDAQ), which develops, designs, manufactures, and markets digital wireless telecommunications products and services based on its code division multiple access (CDMA) technology. The company develops and supplies CDMA-based integrated circuits and system software for wireless voice and data communications and global positioning system (GPS) products to wireless device and infrastructure manufacturers. It grants licenses to use its intellectual property portfolio, which includes certain rights essential to and/or useful in the manufacture and sale of CDMA products, and receives license fees, as well as ongoing royalties based on sales by licensees of wireless telecommunications equipment products incorporating its CDMA technologies.

"Qualcomm is fast becoming the Intel of the wireless chip business, and CDMA is rapidly emerging as superior technology over GSM and being embraced as the technology of choice by most new wireless initiatives. The company is enjoying accelerating business momentum. For the nine months ended June 27, revenues rose 26% to $3.76 billion. Net income from continuing operations increased 73% to $1.34 billion. Revenues reflect higher sales of Mobile Station Modem and accompanying radio frequency integrated circuits. Higher income also reflects improved gross margins and lower investment losses. The stock will split on Aug 13 and company also announced they are raising their dividend by 40%. From a technical standpoint, the stock is a beast and we should soon see the stock commence a brand-new uptrend."

"In addition to the common stock, we also recommend the Qualcomm January 60 Call (AAOAL) at market. The calls are currently offered at $13.30 per contract. There are over 16,200 contracts of open interest in this contract - it's very liquid. If the stock gets to $80, which is only a 13% move during the next three months, the calls will be worth at least $21 for a projected gain of 55%. And by going deep in the money, we pay only $2.80 in time premium for the next six months. So we're looking for a 13% move up in the common stock to generate a 55% profit in the call options. I like the math."

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