Qualcomm Positioned to take Advantage of Global Chip Shortage
Global shortfall of semiconductors has pushed the chips stocks to record high in 2020 and the up move seem to be in no mood to stop going forward in 2021. One of the big beneficiaries of this trend is the San Diego based chip maker, Qualcomm (NASDAQ:QCOM) which has gone up by almost 80% in last year. The company creates intellectual property, semiconductors, software, and services related to wireless technology and it owns patents to some of the common mobile communication standards. QCOM is going to benefit from the expansion of 5G network in 2021 as well.
Qualcomm as an Investment
With a market cap of over 150 billion and P/E ratio of approx. 23, this is one of the reasonably cheap tech stocks in the stock market. With a dividend yield of approximately 2% and having a great dividend paying track record; the decent return on investment for long term investors cannot be denied. Also, the dividend grows at around 9% YoY for last several years for the stock.
The shortage in Chip supply has caused pain for consumers and companies but it has not hurt the Chip industry. The PHLX semiconductor Index (INDEXNASDAQ: SOXX) has gone up by almost 70% in the last one year compared to the 21% gain of the S&P 500 index. The competitors of Qualcomm in the Chip industry like NVIDIA, AMD and TSMC are going to do equally well but Qualcomm could be the biggest beneficiary of the 5G revolution that is imminent now.
With profit margin of approximately 22% and astounding return on equity at 95%, Qualcomm is a great bet for the long-term investor. Qualcomm witnessed an astounding quarterly earnings growth (YoY) of over 485% during a pandemic. Also, the current ratio of 2.13 indicates a decent financial position in the short term and would mean that Qualcomm is better placed to absorb shock in case of adverse macro-economic conditions.
Qualcomm has almost 12.3 billion of cash and has in fact positively surprised in earnings in last 6 quarters in EPS growth. For the next 5 years the growth estimates is projected to be around 24%. Most of the analysts are bullish on the stock and we can witness a decent 25-30% upside from the current position on this stock.