When I think of the effect Apple (AAPL) has on the stock market, I like to say, "When Apple sneezes, the entire market can catch a cold." This was seen clearly last week when the stock of several of Apple's suppliers tumbled along with Apple's.
One of those suppliers was Qualcomm (QCOM), which gets 6% of its revenues from Apple. Upon market news on Friday that Apple's price target was being lowered by two Wall Street analysts, Qualcomm's shares crossed below their 200 day moving average of $61.24, trading as low as $59.56 a share. Then on Monday, Qualcomm recovered, closing at $62.04, which was a 3.69% increase. This was within its 52-week trading range of $51.76 and $68.87.
Monday's surge indicates the stock is reacting to news that Apple sold a record number of iPhone 5s in China over the weekend -- two million, to be exact. Also buoying Qualcomm's stock were findings from a research firm noting that Qualcomm's market share in the chip industry had increased.
Qualcomm was one of only two semiconductor vendors to see positive growth in 2012, according to Gartner. It said the company bucked the industry trend and rose three places to number three with a growth rate of 29.6%. This stemmed from its "continued adoption of smartphones and the growth of 3G and LTE technology in emerging regions, such as China and India," according to Gartner.
The only other top 10 semiconductor vendor to record positive growth in 2012 was Broadcom (BRCM), which rose from the 10th to the ninth position with growth of 8.8%, Gartner noted. Intel (INTC) recorded a 2.7% revenue decline, but managed to hold on to its number one market share position for the 21st consecutive year. Gartner noted Intel captured 16.6% of the 2012 semiconductor market, which was its best performance ever.
The next catalyst that could move Qualcomm's stock will likely come next month when it releases its first quarter 2013 earnings. I turned to the options market on Monday to get an idea of what traders were making of the stock's performance and found that more were bullish than bearish.
More than 25,000 call contracts had been traded for the options that expire January 18 with strike prices between $60 and $67.50. This is about a week after the company reports earnings for the fourth quarter. Specifically, that date is January 30.
The volume of puts traded was considerably lower at about 9,300 for the options with strike prices between $45 and $60.
Also of note was the January 65 call, which had the most open interest and the largest volume of contracts traded. That was about 53,000 and 2,300, respectively. As I've said in several stories I've written about options, a high level of open interest is good for investors because it means there is more liquidity for the call option being traded. Having more liquidity can give the investor just a little more peace of mind in case the need arises to close out the position before the strike expiration date.
Given how Qualcomm's stock can rise or fall based on Apple, which has been all over the place of late, some investors may be anxious about how the stock will be trading by the time the January call contracts expire. If you are, you might consider a covered call strategy, which is the combination of being long the stock and short a call option. If you own Qualcomm, keep in mind that just because you've sold a call against it does not mean that you are protected from losing money if the stock's price goes down, notes Born to Sell, a covered call strategy site.
Here are some other things to consider about Qualcomm. It sells to a lot of companies in addition to Apple, which should help to buffer it against any supply issues stemming from Apple. At least 40 Wall Street analysts have buy ratings on it; five have holds. It has roughly $26 billion of cash on its balance sheet and no debt. It has a $100 billion market cap and pays a dividend of $1, yielding 1.7%. Estimates are that it could grow earnings 16% next year, and it trades at a market multiple of about 15 times next year's earnings.
So Apple can sneeze all it wants, but I think this stock is resilient enough to weather it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.