1. Qualcomm (QCOM) – The August tech selloff has hit Qualcomm hard, but looking under the hood, there is a lot to like here. Dell (DELL) PC sales have been weak and Hewlett-Packard (HPQ) plans on exiting the PC sector. Meanwhile, smartphones and tablets based on the Snapdragon chips are set to be released soon as the market shifts gears to the new wave of technological advancement.
Patents have become a hot commodity since the bidding war between Microsoft (MSFT), Apple, and Google (GOOG) erupted over Nortel’s portfolio. Google is on the prowl buying up whatever it can while Apple and Microsoft attempt to play the role of spoiler. Now consider this: royalty and licensing fees contributed $1.3 billion dollars of revenue during the recently completed third quarter. Qualcomm’s patents are not for sale, but what is the value of a portfolio consisting of more than 9,400 patents that includes CDMA and W-CDMA technology?
With Qualcomm’s stock off by almost 20% in the last 3 months and the stocks of companies with patent portfolios soaring, it appears as though the market severely underestimates the value of Qualcomm’s patent portfolio.
2. Apple (AAPL) – After years of languishing with a small market share relative to the overall size of the desktop and laptop market, the iPad has done something that was once thought impossible: it has brought the entire PC industry to its knees. As mentioned above, Dell’s sales continue to show weakness and Hewlett-Packard plans on exiting the business leaving one of Microsoft’s pillars, Windows, increasingly vulnerable.
When asked about the price point for the iPad, Steve Jobs talked about having ‘first mover advantage’ and with that first mover advantage has come a product that dominates the tablet sector and helped Mac sales to increase by double digits against falling PC sales.
Coming out this fall will be a whole suite of new products from Apple including a new iPhone and iCloud service to go with the recently updated line of Macbooks. Apple is on a product roll so strong that they are able to buck the trend with respect to desktop and laptop sales showing double digit growth against negative sales growth industry wide.
With the stock trading at roughly 14 times earnings, according to Yahoo, Apple remains significantly undervalued in the technology sector. When the market turns Apple will be leading the rally.