Apple Could Learn A Thing Or Two From Qualcomm

Includes: AAPL, QCOM
by: Bret Jensen

As an investor in Apple (NASDAQ:AAPL), it has been a dismal start to 2013 despite the overall rally in the market. Apple's management seems to be tuning out calls to distribute some of its almost $140B cash hoard to investors which has been much commented on in the financial media. The stock seems to grind lower on a daily basis regardless if the market is up or down despite its rock bottom valuation. However, I do expect a significant increase in Apple's dividend over the next month or so. This should buoy the shares and start to accomplish one of the three main items I believe Apple needs to do to turn its fortunes around.

While I await the giant from Cupertino to institute some common sense changes and engineer a more positive sentiment on its shares, I take solace in the performance of another major position I have in the smartphone space which is also an Apple supplier; Qualcomm (NASDAQ:QCOM). This chip maker is showing the way on how to not only run a business but how to reward your shareholders. The shares have been rising all year and it just provided more good news to its shareholders in an announcement this morning. The company is increasing its annual dividend 40% to $1.40/share annually. It is also replacing a stock repurchase program that had $2.5B left on it with a new $5B stock buyback authorization. I would look for the stock to continue its rise on the back of these shareholder rewards as the shares are still cheap at these levels.

5 additional reasons QCOM is a good growth play at under $67 a share:

  1. Analysts expect better than 25% revenue growth in FY2013 and over 10% sales increases in FY2014 as well. The stock sports a five-year projected PEG near 1 (1.01).
  2. With the dividend increase, the stock will now yield north of 2%. The company has now roughly quadrupled its dividend payouts over the last seven years as well.
  3. The stock is selling for under 14x 2014's projected earnings (That is closer to 12x if you subtract the almost 15% of market capitalization the company has net cash on its books)
  4. Consensus earnings estimates for FY2013 and FY2014 have risen nicely over the last two months and the company has easily beaten earnings estimates each of the last two quarters.
  5. The company has grown operating cash flow 50% since FY2010. The stock also has S&P's highest rating "Strong Buy" and an $84 price target on the shares.

Disclosure: I am long AAPL, QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.