Two Calls for Qualcomm

12/06/2002 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

When the leading specialist in wireless stocks and the nation's top options advisor both recommend the same stock, it behooves us to pay attention. Qualcomm remains a favorite of theForbes/Andrew Seybold's Wireless Outlook. It is also now a top pick from Bernie Schaeffer, editor ofThe Option Advisor. Here are their comments.

"Qualcomm (QCOM NASDAQ) has been an excellent performer following a blowout quarter," says Forbes/Andrew Seybold's Wireless Outlook. "The company has consistently outperformed its peers and posted profits. Revenues have jumped from $2.7 billion in 2001 to an expected $2.9 billion this year. During the same period, Qualcomm's earnings before taxes jumped from $1 billion to $1.2 billion. Last month, the company posted its fourth-quarter results, beating estimates. Meanwhile, Qualcomm is in excellent financial shape. The company has a strong balance sheet with $1.4 billion in cash and no debt.

"Much of Qualcomm's success has to do with the reorganization a few years ago. Originally a telecom equipment vendor, Qualcomm got out of the expensive business of making equipment and got into a more lucrative business: licensing its CDMA (code division multiple access) technology to wireless operators and manufacturers of handheld devices. Qualcomm, which owns most of the patents of CDMA, also sells CDMA chips for phone and other wireless devices. Licensing was a smart decision. CDMA is the most efficient technology to distribute data wirelessly. This technology finally makes downloading big files, pictures and music practical. CDMA is now the dominant wireless technology standard in the US, and the second most commonly used technology in the world.

"These are sluggish times and Qualcomm has some potential hurdles ahead. One concern is inventory buildup. Adding to that, Qualcomm warned that it expects demand to fall in its second quarter ending in March 2003. Despite these concerns, Qualcomm has a lot going for it. The company has impressive fundamentals, margins, and, I believe, growth prospects over the next several years. China, Japan, and India promise to accelerate Qualcomm's business. If you own the stock, keep holding. If you don't own it and can take the long-term perspective, buy it."

Adds Bernie Schaeffer, editor of The Option Advisor, "Earlier this month, Qualcomm reported fourth-quarter earnings that beat Wall Street's estimate by four cents. In addition, QCOM projected revenue gains for the current fiscal year of between 19% and 23%. The stock continues to outperform both the NASDAQ Composite and the S&P 100 Index. A recent consolidation into its rising 10-week moving average resulted in a sharp vault higher for the shares. Despite these impressive results, options players continue to bet against the equity. As a further sign of this pessimism, short interest is just a shade under last month's high of 30.6 million shares. Wall Street is similarly skeptical. According to Zacks, ten of the 25 analysts following QCOM rate it a 'hold' and one even rates it a 'sell.' Future upgrades from this group could provide an additional boost to the stock. For options speculators, our recommendation has been to buy the April 35 call (AAWDG)."

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