Activist Eyes Qualcomm

05/04/2015 7:00 am EST

Focus: STOCKS

Charles Mizrahi

Editor, Park Avenue Investment Club and Inevitable Wealth Portfolio

This long-standing recommendation in our Prime Time value portfolio can be considered a toll-bridge company, as the company gets a licensing fee on almost every smartphone sold, explains Charles Mizrahi, editor of Hidden Values Alert.

Qualcomm (QCOM) is greatly undervalued. And now it seems that we weren’t the only ones to think so.

Jana Partners, an activist hedge fund with $11 billion under management, announced on April 13, 2015 that they have taken a $2 billion position in QCOM and are pressing them on strategic changes.

We too currently believe that QCOM is trading at a bargain price, and here’s how we figured it. The market cap based on a $69 share price is about $113.4 billion. The company has a total of $30 billion in cash on the balance sheet.

EBIT (earnings before interest and taxes) over the past 12 months were about $9 billion.

Subtracting the cash ($30 billion) from the market cap ($113.4 billion) comes to $83.4 billion. QCOM is trading at an adjusted P/E of 9.2 ($83.4 billion/$9 billion).

For a company like QCOM, that has stable and growing earnings from their licensing royalties and a chip business that is also growing; trading at a P/E of 9.2 is pretty much a bargain however you slice it.

Jana is pushing for a breakup of the chip and licensing businesses. We don’t have any idea what way this will play out or when. But what we do know is that when you buy companies that are financially sound, trading at bargain prices...good things happen.

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