The end of the year is usually a time to review and revise investment strategies, preparing your portfolio for the next year. One popular revision is to swap winners with losers, especially with the impeding fiscal cliff that may result in higher capital gains taxes.
Qualcomm trades near the upper end of its trading range - at a new high; and it has the highest PE among its peers. Intel trades near to the low end of its trading range- below its 2000 high.
Intel and Qualcomm have comparable financials. So should you trade Qualcomm for Intel?
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Intel versus Qualcomm Price Performance (2000-12)
Intel versus Qualcomm Financial Performance Statistics in 2011
Qtrly Earnings Growth (yoy):
Qtrly Revenue Growth (yoy):
The answer depends on the investor profile. For value investors, Intel is a better bet, given its low valuation, high dividend payout, and the prospect of riding Microsoft's (MSFT) Windows 8 roll-out.
For growth investors, Qualcomm is a better choice -- for four reasons.
1. Size. With $12 billion in sales Qualcomm is less than one-third of Intel's size. This means that the law of large numbers works better for Qualcomm, as do the laws of economies. While Qualcomm is at the threshold where returns scale takes full effect, Intel is approaching the threshold where constant or even decreasing returns to scale begin to kick in.
2. Better company fundamentals. As a pioneer of CDMA technology, Qualcomm enjoys the "first mover" advantage in wireless communications; and with the recent acquisition of Atheros Communications, Qualcomm strengthened its leadership in the industry.
3. Better industry fundamentals. While Intel remains the leader in the mature PC industry - though Intel has made several moves into wireless communications in recent years. Qualcomm maintains leadership in wireless communications, still an emerging industry. Wireless Intelligence estimates that the number of 3G users will reach 2.8 billion by 2014.
4. Riding the industry upgrade cycle. Qualcomm is expected to be the main beneficiary of the wireless communication upgrade cycle. The GSM Association expects telecom providers to spend $100 billion by 2015 -in High-Speed Packet Access (HSPA), 3G, and 4G.