Qualcomm (QCOM) is up a mere 0.17% year to date despite better YTD performance from other tech giants such as Oracle (ORCL), Microsoft (MSFT) or Apple (AAPL). Qualcomm and Google (GOOG) are left behind in the dust to say the least. Qualcomm trades sharply lower at $54 testing its lower trend canal at the moment. The stock marked a 52-week high at $68.87 and has lost about 18% in the last quarter alone.
I believe much of the undervaluation in the technology sector can be traced back to a general skepticism that has persisted for some time already. Investors who are hunting for bargains at this time can still find undervalued equity investments. As stocks remain unloved, there is actually not a real shortage of candidates. Investors who stick with well regarded industry leaders with decent operation- and earnings records should do fine over the long-term.
Qualcomm is such an investment. The company operates in the field of communication equipment and has a market cap of $93 billion. Its operating metrics look very decent: Return on equity of 17%, operating margin of 31% and a net profit margin of 28% indicate that the company is on its toes.
More importantly, savvy investors pick up Qualcomm against the tide with an earnings yield of 7.7% and the company pays a 2% dividend.
I have an earnings target of $5 per share on Qualcomm for 2013. With a multiple of 15 the intrinsic value approaches $75, which represents about 40% upside from today's valuation levels.
Amazon (AMZN) is usually defined as a retailer or online shopping centre. However, I see Amazon as one giant technology operation with an attached warehouse. Tremendous brand value was created by establishing a technology infrastructure that altered the way people shop for things they like. As a result, profitability is been driven by technology and process efficiency as well as bargaining power with suppliers, the size of Amazon and the its dependence on a significantly cheaper "online" warehouse instead of brick and mortar locations.
I am not quite a favorite of retailing business in general as competition is usually fierce and is fighting over every margin point. Even though Amazon has some clear competitive advantages, both valuation and technical chart patterns make me rate the stock a strong sell.
Amazon currently trades at 85x forward earnings. The profit margin stands at only 1% and the return on investment at 5%. The company pays no dividend. In addition, the stock recently rebounded from the upper 1 year trend canal and is on its way to close its massive May gap at $195.
At this point, I recommend investors to sell their position in AMZN until the chart pattern more clearly indicates the direction of the stock price. The operating metrics on profitability and book value growth are not convincing at all and, strictly speaking, are not fulfilling the requirements of the capital markets.