This week’s Stock of the Week is facing its share of issues, but that creates opportunity—it is a leader in its industry, and its technology spans the globe.
Qualcomm Inc. (QCOM) has been beset by multiple uncertainties that have investors with a short-term focus worried—presenting an opportunity for long-term investors who recognize the company’s underlying strength.
The company’s main business is developing and supplying integrated circuits based on its CDMA operating model—one of the major technologies underlying voice and data communications worldwide—and licensing the use of CDMA to mobile carriers, smartphone makers and telecom-equipment manufacturers. Qualcomm’s circuits and software are integral to networking, application processing, multimedia and global positioning.
The firm is currently in a legal dispute with Apple over rebates and royalties and, like many other major US technology companies, is facing regulatory headaches in China. It is also trying to buy Netherlands-based NXP Semiconductors to broaden its product line—which would be the largest deal ever in the semiconductor industry. These issues are likely to cause short-range revenue and earnings disappointments.
Revenue was $23.6 billion in fiscal 2016, should drop to $22.84 billion in fiscal 2017 and then should rise slightly to $23.15 billion in fiscal 2018. But Qualcomm has a net $17 billion in cash and marketable securities on hand, can raise its offer for NXP if need be and pays investors a dividend, which appears safe, of $2.28/share/yr., recently yielding 4.1%. That income stream makes patience on the stock palatable.
Fiscal year: September. Earnings per share: 2018 est./$4.12…2017 est./$4.29…2016/$4.44.
John Buckingham is chief investment officer, Al Frank Asset Management, Inc., Aliso Viejo, California, which manages $650 million, including the $85 million Al Frank Fund (VALUX). AlFrankFunds.com