Qualcomm Incorporated (NASDAQ:QCOM) holds the leading position in the market for 3G, 4G, and next-generation wireless technologies. Qualcomm produces wireless technologies for all the major smartphone manufacturers. The company also holds a vast patent portfolio that adds to its strong financial position. Qualcomm has exhibited a positive financial and market performance, and this is the reason why it is the favorite stock for many analysts.
Qualcomm's Market Performance
Qualcomm has exhibited a strong track of recovery over the past months. The share price has increased by 24.3% since its 12-month low of $53.09 on July 17. At the time of this edition, the share price of the company is within the range of $65.09 and $65.64 while the 52 week range of the share price is between $53.09 and $68.57. The share price came close to hitting the 52 week high in the past month; however, the shares are still being traded closer to the higher extreme. The difference between the two extremes in the 52 week range suggests the extent of growth in the company's share price. Raymond James has increased the rating of the company to "strong buy" from "outperform," and raised its target price from $80 to $83, due to its fast paced recovery. The following chart represents the trend in share price over the past one year.
The chart shows that the average trend of the share price has been upward over the past year. Although there have been several steep declines, the company manages to recover from the declines reasonably quickly, and sometimes it recovers instantly. These fluctuations may present both risks and opportunities for short-term investors.
Qualcomm's Financial Performance and Competitors
Qualcomm has reported strong financial performance in the past quarters. The company reported revenue of $6 billion in the fourth quarter of 2012; this is significantly higher than the company's revenue in the same quarter last year, which stood at $4.7 billion. The net income of the company for the fourth quarter of 2012 was $1.9 billion, which was also higher than last year's $1.4 billion. The prospects of revenue and profits also seem bright. A significant proportion of company revenue is generated from processors for 3G and 4G smartphones, and the global smartphone market is yet to peak. Therefore, there is still significant potential for Qualcomm to enhance its revenue.
Although some analysts are optimistic about Qualcomm's prospective growth, analysts from J.P. Morgan have exhibited some skepticism. According to J.P. Morgan's analysts, 2013 is a very strong year for the smartphone market; however, the average selling prices are likely to come down causing a decline in the extent of profits. Growth in smartphone sales will only prevail when the prices are brought down. If J.P. Morgan's analysts are to be believed, Qualcomm may witness a slowdown in growth in the prospective financial periods.
The main competitors of the company are Broadcom Corp. (BRCM) and Texas Instruments Inc. (NYSE:TXN). Broadcom Corp's business includes provision of semiconductor solutions for wired and wireless communications, therefore, it is a direct competitor to Qualcomm. Despite having a strong financial performance, Broadcom is still weak when compared to Qualcomm, which holds a much stronger financial and market performance. Broadcom reported a net profit margin of $12.07% in its fourth quarter for 2012. The company has also exhibited a strong market performance, and the share price of Broadcom is following a positive trend. Qualcomm's stable market position helps the company mitigate the competitive threat posed by Broadcom.
Another competitor to Qualcomm, Texas Instruments Inc., also manufactures semiconductors and its targeted market is global electronics manufacturers. Like Broadcom, Texas Instruments also has a strong financial performance, although still weaker than Qualcomm. For the fourth quarter in 2012, Texas Instruments reported a net profit margin of 8.86%. Despite a strong financial performance and commendable market performance, Texas Instruments is still a weak competitor compared to Qualcomm.
In my opinion, investors should buy the shares in Qualcomm. I believe that the company has exhibited a strong financial performance and its share price has recovered very swiftly. These factors indicate positive prospects for the market performance of the company. Even if the skepticism of some analysts regarding Qualcomm's growth is warranted, the slowdown in growth will not influence the company in the short term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.