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, MaxKapital (543 clicks)
Long-term horizon, value, growth at reasonable price, capital & stock allocation
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Summary

  • Qualcomm is possibly the best loved mega-cap stock in the market today.
  • Qualcomm was weak during the week commencing 4/21/14. The weakness was triggered by revenues falling slightly shy of expectations.
  • Any weakness resulting from a loss of interest from momentum investors should be used as a buying opportunity.
  • A large decline would be unexpected as value and growth investors are likely to mount a spirited defense.

Qualcomm (NASDAQ:QCOM) is priced at $79.50, and is probably among the most sought after stocks in the market today.

It trades at a trailing twelve month PE of 21.26, which is lower than the market cap weighted trailing twelve month PE for the whole market, the technology sector and the communication equipment industry. Its PE on non-GAAP earnings expected for the year ended September 2014, is at 15.35. And its PE based on non-GAAP earnings expected for the year ended September 2014, is at 13.83, which is lower than the market cap weighted forward PE for the whole market, the technology sector and the communication equipment industry. The stock offers a dividend yield of 2.11%, which is a slight discount to the market cap weighted dividend yield of 2.31% for the market, but it is higher than the 2.07% yield for the technology sector and 1.95% yield offered by the communications equipment industry. Little wonder value investors love this stock.

Source: Alpha Omega Mathematica

Then we look at growth. Sales and earnings growth in the past several years has been strong. But in the recent quarter the pace of growth has moderated somewhat. Expectations for earnings growth in the year to September 15 are at 11.03%, which is lower than the market capitalization weighted growth expectations for the whole market, the technology sector and the communication equipment industry. Over the coming five years growth expectations are robust at 15%. And this expectation has high investor conviction as a result of the strong historic performance. This 15% five-year forward growth expectation is well ahead of market capitalization weighted growth expectations for the whole market (11.09%), the technology sector (11.63%) and the communication equipment industry (11.32%). Clearly stock selectors with a growth bias are attracted to this stock.

Source: Alpha Omega Mathematica

When we get to the quality considerations, we see insider ownership of 1.25%, which is somewhat low in comparison to market capitalization weighted insider ownership for the market and technology sector, but very much in-line with the market capitalization weighted insider ownership for the communications equipment industry. Institutional ownership of 80.2% is high, in comparison to the market capitalization weighted institutional ownership expectations for the whole market, the technology sector and the communication equipment industry. The return and profitability indicators for Qualcomm are all outperforming the market capitalization weighted growth expectations for the whole market, the technology sector and the communication equipment industry. I have no doubt that investors who focus on high quality stocks will love Qualcomm.

Source: Alpha Omega Mathematica

And then we have momentum. Again we see a sea of green spotted by some red, which suggests that the stock has performed quite nicely relative to the market, the technology sector and the communications equipment industry.

Source: Alpha Omega Mathematica

When we bring this all together, we see a high quality company, a well valued company, a company with high growth expectations for its size and reasonable growth expectations otherwise, and a company backed by momentum.

Source: Alpha Omega Mathematica

In fact, at this point in time, the stock is more or less universally loved by investors who select stocks with a value, growth, momentum or balanced bias, and by stock selectors who have no particular style bias. And it is loved by people who allocate capital by evaluating opportunities at the sector level, the industry level, or at the market level without any industry or sector bias.

Source: Alpha Omega Mathematica

Is there too much love? I'd say yes. When a stock is so well loved universally, a little bit less love from one of many different types of suitors is likely to cause a price decline.

Over the past five years, the average weekly price change on Qualcomm has been 0.307% (median 0.41%). The standard deviation over the period has been 3.47%. In the case of Qualcomm, we saw a weekly return of (4.56%) in the week commencing 4/21/14: this compared to a decline of (0.08%) on the S&P 500 for the same week. We have seen something of a rebound in the subsequent two weeks. But I would look for underperformance as momentum style investors lose interest in Qualcomm.

(click to enlarge)

Source: Extracts from my beta regression model

I expect to see a defense by value investors around $76, and a very spirited defense from growth and value investors should the stock decline to $70. While today the stock is cheap in comparison to the market, the technology sector and the communication equipment industry, at the $70 levels the stock is cheap on an absolute or stand-alone basis.

Source: Too Much Love At Qualcomm?