Qualcomm Vs. ASML: I'm Buying One Of These World-Beater Blue-Chips

Feb. 04, 2023 8:15 AM ETASML Holding N.V. (ASML), QCOM, ASMLFAMZN, LOW, MA, TSM103 Comments

Dividend Sensei

Investing Groups

Summary

Buying world-beater-wide moat blue-chips is the lowest-risk way to retire rich and stay rich in retirement.
QUALCOMM Incorporated is a wide moat Ultra SWAN with incredible margins and a dominant position in mobile chips protected by over 160,000 patents.
ASML Holding N.V. is a higher quality and even lower risk chip maker, with a 90% market share in the most advanced chip-making technology.
One of these world-beaters is 6% historically undervalued, trading at a cash-adjusted PEG of 0.96, growing 3X faster than the other, and offering 250% upside potential within six years.
My family hedge fund is building a position in one of these stocks because it could help our portfolio deliver a 4.1% safe yield, 13% to 14% long-term returns, and 11% to 16% income growth while falling just 9% during bear markets.
Looking for a portfolio of ideas like this one? Members of The Dividend Kings get exclusive access to our subscriber-only portfolios. Learn More »

Happy excited man standing under money rain banknotes falling down — Viktor_Gladkov

This article was published on Dividend Kings on Tuesday, January 31st, 2023.

---------------------------------------------------------------------------------------

A lot of people think that high-yield income investing requires focusing on...well, high-yield.

And it's true there's nothing like safe, generous, and growing dividends to help you beat even the worst inflation in 42 years and live your dreams.

Consider this. In 2022 inflation hit 9.1% and was up 8% for the full year.

Did you get an 8% raise last year? I know I didn't.

But guess what kind of raises dividend investors got?

S&P: 11%
dividend growth investors (represented by VIG): 14%
high-yield blue-chip investors (represented by SCHD): 18%.

My family hedge fund, the Dividend Kings ZEUS Income Growth portfolio, saw 18% income growth thanks to a banner year for managed futures.

Want to know the secret to 18% income growth in a year where everything went wrong, and the only winners were dividend investors?

Dividend Kings ZEUS Income Growth Portfolio: -9% In 2022 And +18% Income Growth

Stock	Yield	Growth	Total Return	Weighting	Weighted Yield	Weighted Growth	Weighted Return
OMFL	1.7%	13.4%	15.1%	6.67%	0.1%	0.9%	1.0%
VIG	1.9%	10.0%	11.9%	6.67%	0.1%	0.7%	0.8%
SCHG	0.6%	12.8%	13.4%	6.67%	0.0%	0.9%	0.9%
SPGP	1.3%	15.2%	16.5%	6.67%	0.1%	1.0%	1.1%
SCHD	3.4%	8.6%	12.0%	6.67%	0.2%	0.6%	0.8%
EDV	3.7%	0%	3.7%	13.33%	0.5%	0.0%	0.5%
DBMF	8.5%	0%	8.5%	10.00%	0.9%	0.0%	0.9%
KMLM	9.3%	0.0%	9.3%	10.00%	0.9%	0.0%	0.9%
AMZN	0.0%	19.2%	19.2%	4.17%	0.0%	0.8%	0.8%
LOW	2.1%	20.6%	22.7%	4.17%	0.1%	0.9%	0.9%
MA	0.6%	23.2%	23.8%	4.17%	0.0%	1.0%	1.0%
ASML	1.1%	25.4%	26.5%	4.17%	0.0%	1.0%	1.1%
BTI	7.5%	10.4%	17.9%	3.33%	0.3%	0.3%	0.6%
ENB	6.5%	4.9%	11.4%	3.33%	0.2%	0.2%	0.4%
MO	8.5%	5.0%	13.5%	3.33%	0.3%	0.2%	0.5%
BAM	4.1%	14.6%	18.7%	3.33%	0.1%	0.5%	0.6%
NEP	4.5%	15.0%	19.5%	3.33%	0.2%	0.5%	0.7%
Total	3.8%	11.6%	15.4%	100.00%	4.1%	9.3%	13.4%

(Sources: DK Research Terminal, FactSet.)

In a year when even David Swenson's Yale endowment strategy and Ray Dalio's all-season portfolio drowned, ZEUS Income Growth ended the year down 9%, half the decline of the S&P 500 (SP500).

The peak decline? -11% when the S&P was down 28%, the Nasdaq -35%, and a 60/40 -21%.

Bear Market	ZEUS Income Growth	60/40	S&P	Nasdaq
2022 Stagflation	-11%	-21%	-28%	-35%
Pandemic Crash	-9%	-13%	-34%	-13%
2018	-10%	-9%	-21%	-17%
2011	4%	-16%	-22%	-11%
Great Recession	-20%	-44%	-58%	-59%
Average	-9%	-21%	-33%	-27%
Average Decline vs. Benchmark	NA	45%	28%	34%
Median	-10%	-16%	-28%	-17%
Median Decline vs. Benchmark	NA	63%	36%	59%

(Source: Portfolio Visualizer Premium.)

4% safe yield that grew 18% last year and 16% annually over the last decade, and the average peak decline in a bear market isn't even a correction.

Yes, you really can have it all when you combine the world's best blue-chip assets.

I want to point out the hyper-growth Ultra-SWANs my family hedge fund owns: Amazon (AMZN), Lowe's (LOW), Mastercard (MA), and ASML (NASDAQ:ASML).

I've gotten a lot of questions about why I own these particular growth stocks. Hint, it's not for the yield.

Stock	Yield	Growth	Total Return Potential
AMZN	0.0%	19.2%	19.2%
LOW	2.1%	20.6%	22.7%
MA	0.6%	23.2%	23.8%
ASML	1.1%	25.4%	26.5%
Portfolio Total (Equally Weighted)	3.8%	11.7%	15.5%
Hyper-Growth Ultra SWANs	0.9%	22.1%	23.0%

(Sources: DK Research Terminal, FactSet.)

Do you know what happens when you own pure hyper-growth stocks? You get incredible income growth. How good? Roughly equal to total returns.

Total Return Since 2006

You'd expect four of the world's best growth stocks to deliver strong returns. And they certainly did that over the past 16 years. In fact, they doubled the Nasdaq, including during one of the best tech bull markets in history.

You might not expect that such powerhouse growth can create dividend growth to make grown men weep with joy. But they can.

Dividend Growth That Rich Retirements Are Made Of

Cumulative Dividends Since 2007 Per $1,000 Investment

Metric	Nasdaq	Vanguard High Dividend ETF	AMZN, LOW, MA, ASML
Total Dividends	$407	$885	$1,882
Total Inflation-Adjusted Dividends	$276.87	$602.04	$1,280.27
Annualized Income Growth Rate	21.4%	9.5%	18.4%
Total Income/Initial Investment %	0.41	0.89	1.88
Inflation-Adjusted Income/Initial Investment %	0.28	0.60	1.28
More Inflation-Adjusted Income Than VYM	0.46	NA	2.13
Starting Yield	0.3%	2.7%	2.9%
Today's Annual Dividend Return On Your Starting Investment (Yield On Cost)	5.5%	10.5%	36.5%
2023 Inflation-Adjusted Annual Dividend Return On Your Starting Investment (Inflation-Adjusted Yield On Cost)	3.7%	7.1%	24.8%

(Source: Portfolio Visualizer Premium.)

Are you a high-yield purist who thinks that owning anything that doesn't have a yield of 3+% is wrong?

Are you a dividend growth investor who thinks owning any non-dividend growth stocks is silly?

Behold the power of hyper-dividend growth compounding over 15 years—more than 2X the inflation-adjusted dividend income of VYM and an inflation-adjusted yield of 25%.

There's nothing wrong with safe high-yield blue-chip investing. But as long as you have more than 15 years until you die, adding the world's best growth stocks is a great way to maximize your long-term retirement income.

10% of retired couples will have one person live to 100
so any investor age 85 or younger would benefit from owning some hyper-growth blue-chips.

This brings me to a question recently posted by a Dividend Kings member.

"Why don't you own Qualcomm? Why is ASML the only individual chip stock you own?

Let me now share with you why both Qualcomm Incorporated (NASDAQ:QCOM) and ASML Holding N.V. are world-beater blue-chips but why my family hedge fund is only buying ASML right now.

Why Qualcomm Is A World-Beater Chip Maker

Why is Qualcomm a world-beater? It has a total of 263,708 patents, 62%, or 163499 of which are active. That helps it enjoy a wide moat and profitability in the top 5% of chip makers.

QCOM's dominance in patents for 3G, 4G, and now 5G base-band chip technology means that in connected devices like smart-phones it has a dominant position in high margin licensing.

Companies like Samsung (one of its largest customers) have created their own rival chips (Exnos competes with Snapdragon) but historically these have lagged in performance.

QCOM's mountain of patents gives it a love-hate relationship with its biggest customers, including Apple (AAPL) and Samsung (OTCPK:SSNLF), who have sued it along with the U.S. government accusing it of anti-competitive practices.

QCOM won a lengthy legal fight and it's QTL business is safe for now

It's profitability is historically in the top 5% of chip makers, including net margins of 29% over the last year and returns on capital of 261%.

ROC = annual pre-tax income/the cost of running the business
Joel Greenblatt's gold standard proxy for moatiness and quality.

For context, the S&P's ROC is 15% and the dividend aristocrats 89%.

For every $1 it takes to run its business, QCOM is generating $2.61 in annual operating income.

While QCOM spends about $7.5 billion per year on R&D (18% of sales) to maintain its competitive edge, it's otherwise a capital light business model, because it's a fabless chip-maker. That means it outsources its chip production to companies like GlobalFoundries Inc. (GFS).

QCOM spends just $2 billion per year on growth capex, which is why it's able to generate 25% free cash flow margins, slightly better than Apple's 23%.

It's annual river of about $13 billion in free cash flow ("FCF") is how it can return cash to shareholders, including $3.0 to $3.5 billion in buybacks and a dividend that's been growing for 19 consecutive years. A dividend that's been growing at 12% for the last decade.

That dividend yields a modest 2.4%, but that's 3X better than the Nasdaq and 0.7% higher than the S&P 500.

That's a very safe dividend with a 93% safety score on our 250 point dividend safety model.

0.5% risk of a cut in the 2023 recession (mild to average)
1.35% risk of a cut in a Pandemic or Great Recession level downturn.

That very safe dividend is courtesy of a 29% payout ratio, almost half the 50% safety guideline from rating agencies for chip makers.

QCOM is an A-rated company meaning a 0.66% 30-year default (bankruptcy) risk.

That means that, according to S&P, 1 in 152 chance anyone buying QCOM today loses all their money in the next 30 years.

QCOM has a very modest debt/cash flow ratio of 0.9X which is expected to fall to 0.8X in 2023, a recession year.

rating agencies consider 1.5X net leverage safe for chip makers.

QCOM's net debt/cash flow is just 0.6, and its pre-tax profits cover its interest costs 30X (8+ is considered safe).

Are there risks to QCOM's business? Of course.

QCOM's Risk Profile Includes

industry/economic cyclicality
industry disruption risk (primarily from Apple and Samsung who are making their own chips)
Customer concentration risk (Apple and Samsung)
political/regulatory risk (M&A and antitrust litigation)
litigation risk (multi-year court battles with Apple, Huawei, and many others)
M&A execution risk
talent retention risk
supply chain disruption risk (causing havoc globally right now)
currency risk (significant since 97% of sales are international).

But QCOM is one of the best companies on earth at managing these long-term risks.

DK uses S&P Global's global long-term risk-management ratings for our risk rating.

S&P has spent over 20 years perfecting their risk model
which is based on over 30 major risk categories, over 130 subcategories, and 1,000 individual metrics
50% of metrics are industry specific
this risk rating has been included in every credit rating for decades.

The DK risk rating is based on the global percentile of how a company's risk management compares to 8,000 S&P-rated companies covering 90% of the world's market cap.

QCOM Scores 83rd Percentile On Global Long-Term Risk Management

S&P's risk management scores factor in things like:

supply chain management
crisis management
cyber-security
privacy protection
efficiency
R&D efficiency
innovation management
labor relations
talent retention
worker training/skills improvement
occupational health & safety
customer relationship management
business ethics
climate strategy adaptation
sustainable agricultural practices
corporate governance
brand management.

QCOM's Long-Term Risk Management Is The 129th Best In The Master List 74th Percentile In The Master List)

Classification	S&P LT Risk-Management Global Percentile	Risk-Management Interpretation	Risk-Management Rating
BTI, ILMN, SIEGY, SPGI, WM, CI, CSCO, WMB, SAP, CL	100	Exceptional (Top 80 companies in the world)	Very Low Risk
Strong ESG Stocks	86	Very Good	Very Low Risk
Qualcomm	83	Very Good	Very Low Risk
Foreign Dividend Stocks	77	Good, Bordering On Very Good	Low Risk
Ultra SWANs	74	Good	Low Risk
Dividend Aristocrats	67	Above-Average (Bordering On Good)	Low Risk
Low Volatility Stocks	65	Above-Average	Low Risk
Master List average	61	Above-Average	Low Risk
Dividend Kings	60	Above-Average	Low Risk
Hyper-Growth stocks	59	Average, Bordering On Above-Average	Medium Risk
Dividend Champions	55	Average	Medium Risk
Monthly Dividend Stocks	41	Average	Medium Risk

(Source: DK Research Terminal.)

QCOM's risk-management is in the top 26% of the world's best blue chips and is similar to:

Philip Morris International (PM): Ultra SWAN dividend king
Becton, Dickinson & Company (BDX): Ultra SWAN dividend king
T. Rowe Price (TROW): Ultra SWAN dividend aristocrat
Nestle (OTCPK:NSRGY): Ultra SWAN global aristocrat
Visa (V): Ultra SWAN.

The bottom line is that all companies have risks, and QCOM's is very good, at managing theirs, according to S&P.

How We Monitor QCOM's Risk Profile

30 analysts,
three credit rating agencies
33 experts who collectively know this business better than anyone other than management

When the facts change, I change my mind. What do you do, sir?" - John Maynard Keynes.

There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead, we always follow. That's the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.

So if QCOM is so great why don't I own it outside of two exchange-traded funds ("ETFs"): (SCHG and VIG)?

Because ASML is even better.

Why ASML Is The Ultimate Chip Dividend Blue-Chip

Dutch company
15% dividend tax withholding for U.S. investors
own in a taxable account to get the tax credit to recoup the withholding
retirement accounts don't qualify for the tax credit.

ASML has been called by some analysts "the ultimate chip stock." Why? Because it has 90% market share in lithography systems. I know of no company on earth that commands such market share, in any industry.

The closest analog was Standard oil at the peak of its power which commanded 90% of the refined products market in the U.S. But unlike Standard Oil, no major government is trying to break it up.

Founded in 1984 and based in the Netherlands, ASML is the top supplier of photolithography systems used in the manufacturing of semiconductors. Photolithography is the process in which a light source is used to expose circuit patterns from a photomask onto a semiconductor wafer." - Morningstar

ASML makes the complex systems that make chips. Specifically it's extreme ultraviolet lithography or EUV systems let companies like GFC and Taiwan Semiconductor (TSM) create the world's most advanced chips. While tradition UV lithography can create chips down to 3NM scale, companies like TSM are working on 2nm or even smaller chips that will be released in the next few years.

smaller node designs for chips = better performance and lower energy usage

How advanced are ASML's EUV systems? Their average selling price in 2022 was $67 million. But guess what? When Intel (INTC) is building a $30 billion chip factory in Arizona or Taiwan Semi is spending $100 billion over three years expanding its chip capacity, $51 million per system to make the world's best chips is a drop in the bucket.

by 2027 that average selling price is expected to rise to $72.3 million.

That's why ASML just reported results that weren't just better than almost any chip company, they were spectacular. In a year when chip makers struggled with oversupply and falling revenue (in the case of Intel the worst revenue decline in history) just take a look at this results summary from my SA colleague Growth at A Good Price:

"ASML's earnings release was strong, boasting metrics like:

$6.43 billion in sales, up 11.2% sequentially.
$21.2 billion in full year sales, up 13.7% year over year.
95 new lithography systems sold, up 18.75% sequentially.
317 in full year lithography systems sold, up 10.8% year over year.
$3.3 billion in gross profit, up 10.1%.
$1.8 billion in net income, up 6.8%.
$4.60 in diluted EPS, up 7.22%.
Guidance for 25% revenue growth in 2023."

ASML had a great 2022, with 11% growth in EUV systems driving 14% growth in revenue. Margins did contract a bit, resulting in EPS rising just 7%. But in a year when many chip company's posted flat or negative growth, that's impressive.

Even more impressive is the fact that management is guiding for 2023 sales growth of 25%. Let me reiterate that. In a recession year, ASML management is expected 25% sales growth, a feat that most tech companies would love to report in a booming economy.

ASML Is NOT Participating In This Recession

That 25% sales growth is expected to drive 31% EPS growth in 2023, a recession year. Then 24% and 27% EPS growth is expected in 2024 and 2025 according to FactSet.

If ASML is trading at historical fair value by the end of 2025 and the company achieves its expected growth, then it could deliver 70% returns, or a Buffett-like 20% annually over the next three years.

In other words, because ASML is the ultimate "picks and shovels" chip stock, supplying every the core technology that makes more advanced chips possible, it's expected to be largely immune to this recession.

it grew 51% during the Pandemic as well.

OK but how do we know management isn't blowing smoke about that 25% sales guidance?

We assign ASML with an Exemplary capital allocation rating. The rating reflects our assessments of a sound balance sheet, exceptional investments associated with the firm’s strategy and execution, and attractive and appropriate shareholder distribution policies." - Morningstar (emphasis added).

ASML is led by a management team that's second to none in this industry.

Peter Wennink is the CEO and has been with the company since 1999, 24 years. He took over the top job in 2013 after serving as Chief Financial Officer.

What about the rest of the executive team? They average more than 10 years with ASML and even longer industry experience.

And management isn't just brilliant at running the company and staying ahead of its competitors (Huawei is working on EUV tech but is far behind ASML), it's also very shareholder friendly.

ASML began paying a dividend in 2008 and has raised it for 12 consecutive years.

How safe is that dividend?

100% DK safety score = 0.5% average recession cut risk and 1% severe pandemic cut risk

Why is ASML's dividend one of the safest of any company's on earth?

34% payout ratio vs 50% safe
by 2025 the payout ratio is expected to fall to 28%

What about the balance sheet?

ASML has an A stable credit rating from Fitch and Moody's, equal to QCOM's.

0.66% fundamental risk of losing all your money in the next 30 years

ASML has almost as much cash as debt, meaning it could pay off all but $150 million in debt overnight if it wanted to.

ASML spends just $1.5 billion per year on growth capex, and mints money at an even more impressive rate than QCOM.

R&D spending is $4.2 billion per year (15% of sales) growing to $5.9 billion by 2028 (12% of sales)

In 2022 ASML's free cash flow margin was 35%, 10% higher than QCOM's and in the top 10% of all companies on earth.

In the last year it's cash return on invested capital was a mind blowing 56%.

It's historical profitability is in the top 5% of chip makers, just like QCOM.

But it has higher free cash flow margins and has a much better growth outlook.

And guess what else it does better than QCOM?

One Of The Best Risk Management Companies On Earth

Here is what ASML has to contend with, in terms of challenges to its business.

ASML's Risk Profile Includes

modest economic cyclicality risk (earnings collapsed 127% in the Great Recession)
disruption risk: from new technologies like e-beam lithography could pose a significant challenge to its moat
supply chain risk: Carl Zeiss SMT is a major supplier of critical parts for its EUV systems, if Zeiss gets in trouble ASML could become supply constrained
regulatory risk: for future M&A especially
customer concentration risk: the foundry business is dominated by a few giants like TSM, GFC, and Samsung
currency risk: 84% of sales are in non-euros
labor retention risk: job markets are tight all over the world

How well does ASML manage all these risks (and 993 others)?

ASML Scores 93rd Percentile On Global Long-Term Risk Management

ASML's Long-Term Risk Management Is The 62nd Best In The Master List 88th Percentile In The Master List)

Classification	S&P LT Risk-Management Global Percentile	Risk-Management Interpretation	Risk-Management Rating
BTI, ILMN, SIEGY, SPGI, WM, CI, CSCO, WMB, SAP, CL	100	Exceptional (Top 80 companies in the world)	Very Low Risk
ASML	93	Exceptional	Very Low Risk
Strong ESG Stocks	86	Very Good	Very Low Risk
Qualcomm	83	Very Good	Very Low Risk
Foreign Dividend Stocks	77	Good, Bordering On Very Good	Low Risk
Ultra SWANs	74	Good	Low Risk
Dividend Aristocrats	67	Above-Average (Bordering On Good)	Low Risk
Low Volatility Stocks	65	Above-Average	Low Risk
Master List average	61	Above-Average	Low Risk
Dividend Kings	60	Above-Average	Low Risk
Hyper-Growth stocks	59	Average, Bordering On Above-Average	Medium Risk
Dividend Champions	55	Average	Medium Risk
Monthly Dividend Stocks	41	Average	Medium Risk

(Source: DK Research Terminal)

ASML's risk-management is in the top 12% of the world's best blue chips and is similar to:

Alphabet (GOOG): Ultra SWAN
Caterpillar (CAT): Ultra SWAN dividend aristocrat
Bank of Montreal (BMO): Ultra SWAN
Cummins (CMI): Ultra SWAN
Toronto-Dominion Bank (TD): Ultra SWAN

While all companies have risk, according to S&P, just 7% of companies on earth manage theirs better than ASML.

How We Monitor ASML's Risk Profile

33 analysts,
two credit rating agencies
36 experts who collectively know this business better than anyone other than management

Why I'm Buying ASML Instead Of Qualcomm Right Now

Both QCOM and ASML are wonderful companies, but in terms of which is the better buy at the moment, QCOM wins.

Qualcomm Valuation

quality rating: 93% very low risk 13/13 quality Ultra SWAN
current price: $133.21
fair value: $162.28
discount: 18%
DK rating: potential strong buy.

While QCOM is more undervalued than ASML, it's growth outlook isn't nearly as attractive. It offers 20% better return potential than the S&P over the next few years.

ASML Valuation

quality rating: 99% very low risk 13/13 Ultra SWAN
current price: $660.84
fair value: $703.59
discount: 6%
DK rating: potentially good buy.

While ASML might be 12% less undervalued than QCOM, it's far superior growth profile means far better return potential in the short-term.

ASML offers 2X the return potential of QCOM in the short-term. And even more impressive return potential over the next five years.

ASML 2029 Consensus Return Potential

ASML offers 250% return potential, or a 3.5X return, in the next six years.

5X more than the S&P 500 consensus

Now compare that to QCOM.

QCOM 2029 Consensus Return Potential

QCOM offers a solid 117% return potential over the next six year, or 12% annually.

QCOM has 2X the return potential of the S&P
ASML has over 2X the return potential of QCOM.

And it's not just the next few years that analysts expect ASML to beat QCOM in terms of return potential.

Consensus Long-Term Return Potential

Investment Strategy	Yield	LT Consensus Growth	LT Consensus Total Return Potential	Long-Term Risk-Adjusted Expected Return	Long-Term Inflation And Risk-Adjusted Expected Returns
ASML	1.1%	25.7%	26.8%	18.8%	16.5%
ZEUS Income Growth (My family hedge fund)	4.1%	9.3%	13.4%	9.4%	7.1%
Schwab US Dividend Equity ETF	3.6%	8.6%	12.2%	8.5%	6.3%
Vanguard Dividend Appreciation ETF	2.2%	10.0%	12.2%	8.5%	6.3%
Nasdaq	0.8%	10.9%	11.7%	8.2%	5.9%
Dividend Aristocrats	1.9%	8.5%	10.4%	7.3%	5.0%
S&P 500	1.7%	8.5%	10.2%	7.1%	4.9%
Qualcomm	2.3%	7.8%	10.1%	7.1%	4.8%
REITs	3.9%	6.1%	10.0%	7.0%	4.7%
60/40 Retirement Portfolio	2.1%	5.1%	7.2%	5.0%	2.8%

(Source: DK Research Terminal, FactSet, Morningstar.)

QCOM's current growth outlook is basically on par with the S&P 500, though it's quality and dividend safety is far superior.

But ASML offers higher consensus total return potential than any other hyper-growth Ultra SWAN my family owns.

Inflation-Adjusted Consensus Return Potential: Per $1,000 Investment

Time Frame (Years)	7.9% CAGR Inflation-Adjusted S&P 500 Consensus	7.8% Inflation-Adjusted QCOM Consensus	24.5% CAGR Inflation-Adjusted ASML Consensus	Difference Between Inflation-Adjusted ASML Consensus And S&P Consensus
5	$1,465.25	$1,458.48	$2,996.02	$1,530.77
10	$2,146.96	$2,127.15	$8,976.12	$6,829.16
15	$3,145.84	$3,102.40	$26,892.61	$23,746.77

(Source: DK Research Terminal, FactSet.)

Even if ASML only grows at the current rate for 10 to 15 years, the extra income and wealth it could generate are sensational.

Time Frame (Years)	Ratio Inflation-Adjusted ASML Consensus/QCOM Consensus	Ratio Inflation-Adjusted ASML Consensus vs. S&P consensus
5	2.05	2.04
10	4.22	4.18
15	8.67	8.55

(Source: DK Research Terminal, FactSet.)

Over the next five years alone it offers twice the return potential of QCOM, and over the next decade potentially 4X the inflation-adjusted wealth.

Bottom Line: Qualcomm Is A Great Company, But ASML Is A Far Better Buy

Let me be clear: I'm NOT calling the bottom in ASML or QCOM (I'm not a market-timer).

13/13 quality does NOT mean "can't fall hard and fast in a bear market."

Fundamentals are all that determine safety and quality, and my recommendations.

over 30+ years, 97% of stock returns are a function of pure fundamentals, not luck
in the short term; luck is 25X as powerful as fundamentals
in the long term, fundamentals are 33X as powerful as luck.

While I can't predict the market in the short term, here's what I can tell you about QCOM and ASML.

Both are wide moat, very low risk, Ultra SWAN quality world-beater chip blue-chips.

Both have incredibly efficient R&D departments and excellent patent portfolios, supporting profitability in the top 5% of their industries.

Both have rock-solid A stable credit ratings and excellent long-term risk management.

But while QCOM is 18% undervalued and ASML just 6%, I am buying ASML today for one simple reason.

It's the ultimate chip stock, with a 90% market share in the world's most advanced chip making technology.

It's growing about 3X faster than QCOM and offers 8X the inflation-adjusted return potential over the next 15 years.

ASML 250% total return potential over the next 6 years.

And while QCOM's balance sheet and risk management are excellent, ASML's are slightly better.

Ultimately for my family, the decision about whether or not to add a specific blue-chip to our ZEUS Income Growth portfolio comes down to one thing.

does adding a stock improve the yield or long-term return potential of the entire portfolio?

Adding QCOM would require cutting the allocation to other hyper-growth Ultra SWANs from 4.2% to 3.3%. And this is what my family hedge fund would look like if we did that.

Dividend Kings ZEUS Income Growth Portfolio With QCOM

Stock	Yield	Growth	Total Return	Weighting	Weighted Yield	Weighted Growth	Weighted Return
OMFL	1.7%	13.4%	15.1%	6.67%	0.1%	0.9%	1.0%
VIG	2.2%	10.0%	12.2%	6.67%	0.1%	0.7%	0.8%
SCHG	0.6%	12.8%	13.4%	6.67%	0.0%	0.9%	0.9%
SPGP	1.2%	15.2%	16.4%	6.67%	0.1%	1.0%	1.1%
SCHD	3.6%	8.6%	12.2%	6.67%	0.2%	0.6%	0.8%
EDV	3.7%	0%	3.7%	13.33%	0.5%	0.0%	0.5%
DBMF	8.5%	0%	8.5%	10.00%	0.9%	0.0%	0.9%
KMLM	9.3%	0.0%	9.3%	10.00%	0.9%	0.0%	0.9%
AMZN	0.0%	19.2%	19.2%	3.33%	0.0%	0.6%	0.6%
LOW	2.0%	20.6%	22.6%	3.33%	0.1%	0.7%	0.8%
MA	0.6%	23.2%	23.8%	3.33%	0.0%	0.8%	0.8%
ASML	0.8%	25.4%	26.2%	3.33%	0.0%	0.8%	0.9%
QCOM	2.2%	7.8%	10.0%	3.33%	0.1%	0.3%	0.3%
BTI	7.7%	10.4%	18.1%	3.33%	0.3%	0.3%	0.6%
ENB	6.5%	4.9%	11.4%	3.33%	0.2%	0.2%	0.4%
MO	8.3%	5.0%	13.3%	3.33%	0.3%	0.2%	0.4%
BAM	4.1%	14.6%	18.7%	3.33%	0.1%	0.5%	0.6%
NEP	4.4%	15.0%	19.4%	3.33%	0.1%	0.5%	0.6%
Total	3.7%	11.5%	15.2%	100.00%	4.1%	8.9%	13.0%

(Sources: DK Research Terminal, FactSet, Morningstar.)

It would still be an amazing portfolio but one with the same yield and 0.4% lower long-term return potential.

34% less inflation-adjusted return potential over our 100 year time horizon,

If a stock reduces the portfolio fundamentals you care most about it's an example of "de-worsification."

QCOM is owned by SCHG and VIG and we have a 0.2% allocation via those,

AMSL isn't owned by any gold-standard ETF, and so it's reasonable and prudent to build a 4.2% position.

a 20:1 ratio of ASML to QCOM,

In other words, I'm not saying QCOM isn't worth owning. My family hedge fund owns a little via ETFs.

But ASML? It's the ultimate hyper-growth Ultra SWAN example of a Buffett-style "wonderful company at a fair price."

And in case you're wondering it's possible for a company trading at 33X 2023 earnings can be fairly valued:

ASML trades at 25X cash-adjusted earnings
and is growing at almost 26% annually.

Guess what Peter Lynch would call a company trading at 25X true earnings (cash-adjusted) growing at 26%?

a PEG of 0.96
growth at a reasonable price.

So those are the reasons why I consider ASML the ultimate chip Ultra SWAN and why I'm steadily buying it every other day until my family hedge fund owns our 4.2% target allocation.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

----------------------------------------------------------------------------------------

Dividend Kings helps you determine the best safe dividend stocks to buy via our Automated Investment Decision Tool, Zen Research Terminal, Correction Planning Tool, and Daily Blue-Chip Deal Videos.

Membership also includes

Access to our 10 model portfolios (all of which are beating the market in this correction)
my correction watchlist
50% discount to iREIT (our REIT-focused sister service)
real-time chatroom support
real-time email notifications of all my retirement portfolio buys
numerous valuable investing tools

Click here for a two-week free trial, so we can help you achieve better long-term total returns and your financial dreams.

This article was written by

Dividend Sensei

102.58K Followers

Leader of The Dividend Kings

Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).

I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Disclosure: I/we have a beneficial long position in the shares of ASML either through stock ownership, options, or other derivatives. 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.

Additional disclosure: DK owns ASML and QCOM in our portfolios.