"In 1999, Qualcomm (NASDAQ: QCOM) went from less than $4 to over $92; but the party came to a screeching halt over the next three years," recalls Chuck Carlson, an expert on stocks that offer dividend reinvestment plans.
In The DRIP Investor, he explains, "The stock has been stuck in a trading range for the last four years. But that looks like it is about to end, as it recently moved to a new 52-week high and is setting its sites on its 2006 high of $53."
"Strong earnings and greater visibility on some litigation matters should pave the way for solid gains in the second half of 2008. Technology stocks should remain among the market's leading sectors, and Qualcomm offers an excellent play in the group.
"Qualcomm generates 90% of its revenue from cell-phone chipsets and license royalties paid by users of its intellectual property. Qualcomm's chips are used in mobile phones and wireless infrastructures around the globe.
"Growth here should remain strong as networks convert to third-generation technology and emerging markets expand and upgrade their infrastructure.
"The company's most profitable segment is intellectual-property licensing. Qualcomm has had some uncertainty in this area as a result of a feud with Nokia. Legal disputes with Nokia stem from Nokia's shipping handsets without paying royalties.
"The good news is that the two companies have agreed to consolidate a host of lawsuits into one case to be heard later this year. Hopefully a decision by year-end will lift some of the clouds that have hung over these shares.
"Despite the Nokia issues, Qualcomm has continued to put up good growth numbers. Per-share earnings excluding special items and stock-based compensation rose 23% in fiscal 2007 ended in September and 14% in the six months ended March 31.
"For fiscal 2008, the consensus earnings estimate shows 5% growth, a rather modest earnings target for the company. The company currently pays a quarterly dividend of $0.16 per share. The stock's current yield is 1.4%.
"At 22 times the fiscal 2008 earnings estimate of $2.11 per share, these shares are not cheap. However, that multiple is significantly lower than Qualcomm's historical P-E ratio. Investors willing to endure above-average price volatility should buy these shares now.
"The stock has the potential to put on significant gains with a resolution in the Nokia issue. I own these shares in a non-DRIP account and would recommend them for DRIP and non-DRIP investors alike. The company's DRIP permits initial purchase directly. Minimum initial investment is $500."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
6-11-2008 @ 11:16AM
nathan said...
Whatever happened to Douglas McIntyre on this stock? He has been dumping on it forever, but I haven't seen him write anything since January.