Qualcomm: Add When The Current Sell-Off Settles (NASDAQ:QCOM)

Qualcomm (QCOM) is a primary player in the wireless market. The following is from the company’s latest 10-K, released in early November:

We are a global leader in the development and commercialization of foundational technologies for the wireless industry. Our technologies and products are used in mobile devices and other wireless products, and are sold across industries and applications beyond mobile handsets, including automotive and the internet of things (IoT) (which includes the industries and applications of consumer, industrial and edge networking), among others. Our inventions have helped power the growth in smartphones, which have connected billions of people. We are a leader in 3G (third generation), 4G (fourth generation) and 5G (fifth generation) wireless technologies. We derive revenues principally from sales of integrated circuit products, including our Snapdragon® family of highly-integrated, system-based solutions, and licensing of our intellectual property, including patents and other rights.

Finviz places the company in the semi-conductor group, where it is the 5th largest by market capitalization.

At this time, it’s nearly impossible to understate the importance of this sector. As the company notes above, they are involved in markets that are foundational to the modern economy: wireless communications, the “internet of things,” autos, and industrial applications. While the information provided on the Semiconductor Industry Association’s website is obviously biased to present the industry in the best light, the basic data is clear: this industry is growing with no signs of cresting in sight.

To further show the industry’s upside, consider this chart of the SMH, the ETF that tracks the semi-conductor industry:

During the last 10 years, the ETF has had very few corrections. And those that did occur were short-lived.

Next, let’s take a look at key data from the company’s financial statements. Because QCOM is an established company, my expectation is that they can attract top financial and executive management who will run the company well. I use the financial statements to undercover problems that are quantifiable. For example, a large spike in the debt/asset ratio (which would indicate the company is potentially becoming over-leveraged), large swings in costs, etc… None of these exist with QCOM.

Let’s start with the debt/asset ratio:

The above table is derived from the company’s balance sheet downloaded from Seeking Alpha. The calculations are the author’s. While the company has taken on debt, the debt/asset ratio is currently 33.22%, which is very manageable.

Gross profit was steady until 2021 when it dipped about 5%. However, operating income remained steady. Net income has bounced around a bit more as well. On the plus side, R&D expenditures — which are the lifeblood of the company — have remained steady. Because this is a tech company, a bit of volatility is understandable.

The above table was created by the author using data from the income and cash flow statement. It shows that after paying interest and dividends, the company has more than enough cash.

Now, let’s turn to the earnings picture:

The bottom chart shows that the company has surprised in each of the last four quarters. The top chart shows that 26 analysts have upped their respective earnings estimates for the coming quarter. None have lowered.

That leads to the charts:

The weekly chart (left) shows a rally that lasted until the beginning of last year. The stock consolidated those gains until last November when prices spiked sharply higher on strong volume. The daily chart (right) shows that the stock has traded lower in the latest sell-off.

The overall picture for QCOM is very bright — it’s very much a case of right industry, right company. It’s also a well-managed company, as seen in the financials.

The primary problem right now is the current sell-off. Wait for the broader market to find a bottom. Once that happens, adding QCOM would be an appropriate action.

This is not specific advice for any reader. Investments involve risk.