Qualcomm: Selling Shovels In A Gold Rush

Aug. 5.13 | About: Qualcomm Inc. (QCOM)

There was a time not long ago when life was simpler. Cell phones, laptops and tablets had yet to exist. The year 1849, is often forgotten, but there are many comparisons to be made with here and now. The news of gold brought speculators and encouraged development. The "Rush" is responsible for many of the advancements of the time period. The main focus of this article is to explain to you why the 21st century is no different; the only thing that has changed is the commodity in question, gold replaced by mobility, and just as the real winners in 1849 were the shovel producers, this article will explain to you exactly why the best way to invest in the tech sector right now is in today's most innovative semiconductor company, Qualcomm (NASDAQ:QCOM).

Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecommunications products and services. The company is a pioneer in CDMA and HSPA technologies, and in the last several years has grown tremendously with the boom in mobile computing.

The Balance Sheet

In looking at long term investments, it is essential to consider the current financial stability and health of a company. QCOM has several very healthy measurables; first and foremost, the company has absolutely no debt. That being said, QCOM will not face the struggles to spur innovation that many debt-ridden counterparts will. QCOM has approximately $12B in cash and cash equivalents, an impressive figure. Furthermore, receivables represent less than ten percent of trailing twelve months revenues, which means that payment is being delivered in a timely and efficient manner. All around, QCOM has an immaculate balance sheet; this is a blueprint that many companies aspire to.

The Income Statement

In addition to a rock solid balance sheet, their income statement is no different. QCOM has done nothing but impress recently, even where many other tech companies have faltered. Income has grown very heavily in the last four years, and for the twelve months ending in Sep of '12, the company had earned $3.15/s diluted and normalized. At this moment, the company has earned $3.16/s thus far this fiscal year, through 3 quarters. Hardly any other tech company has been this consistent in their growth, especially in a time when people are questioning smartphone saturation with Apple's (NASDAQ:AAPL) recent decline. All in all, again we see a very healthy financial report.

A Tale of Things to Come

The articles I write generally have a focus on distressed assets and distressed companies, for example my article on Advanced Micro Devices (AMD). My articles on Box Ships and Garmin (NASDAQ:GRMN) are of a similar theme, however, this article is very different in that the business is absolutely booming, and this company is very healthy in a high growth stage. I am writing this, because I truthfully believe QCOM is the single best way to invest in the mobile revolution.

I am a value investor at heart, and I have bought in to Intel (NASDAQ:INTC) at certain price levels, but there is major downside risk, as the company is facing drastic cuts in EPS from the PC market. The death of the PC has only just begun, and AMD is a good play on a potential turnaround, but it's a fairly risky play. AAPL is highly variable on a day to day basis on news and analyst manipulation, and quite frankly, if the smartphone market is saturated and AAPL has hit its peak in earnings, then the company stands to lose a lot more. The company has a lot of cash, but that is all it has. It has no assets besides that cash, and if its cash flow drops back to previous levels before the boom brought on by tablet sales and iPhones, then the company has a crisis in store.

We are in the middle of one of the greatest gold rushes in history, and these companies are speculators, selling the gold, pumping out smartphones and tablets. The industry has room to grow, but the fate of all of these individual companies is very different. QCOM is the shovel company, and it has laid seeds all over the industry, selling the universal tools that the speculators need. What's more, the coming quarter is set to be a big one. The company's tools are popping up in the beautiful HTC One, in Samsung tablets, Samsung smartphones, Sony (NYSE:SNE) smartphones, the next Kindle Fire, the next Nokia (NYSE:NOK) tablet, and perhaps most importantly, the next Nexus 7. Google (NASDAQ:GOOG) said goodbye to Nvidia (NASDAQ:NVDA), and I think you should too. The company is coming up on its biggest quarter ever, potentially, and QCOM is already forecasting as much.

QCOM's products are the best of the best and the stock is not priced as such, particularly with the track record for earnings growth. The single best way to make money in this gold rush is QCOM; get in before the market prices it as such.

Disclosure: I have no positions in any of the stocks mentioned. 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.