Qualcomm: Best-in-breed smartphone play
This chipmaker has an impressive patent portfolio, strong cash and a cheap stock price.
Qualcomm (QCOM) continues to be the top chipmaker for high-end smartphones. Its best-in-breed technology is considered the only one to offer a complete processing solution that allows for all the features consumers are looking for (such as WiFi and GPS).
Meanwhile, the stock -- a selection on our Recommended List -- announced a new stock buyback program and an increase to its dividend.
The mobile chipmaker will up its quarterly distribution by 40% from 25 cents per share to 35 cents per share. The new dividend will be payable after March 27. The increase payout bumps its yield up to about 2.1%.
The company also implemented a new $5 billion stock buyback program effective immediately. It will replace a $4 billion repurchase program that had $2.5 billion remaining on it. The buyback has no expiration date.
Qualcomm is a very cash rich company, ending its fiscal Q1 with $28.4 billion in cash and investments and no debt, equal to about $16.22 per share. It also generated $1.98 billion in operating cash flow and $1.85 billion in free cash flow last quarter.
The move to return cash to shareholders is a good one, as it doesn't want to fall into the same trap as Apple and have a huge cash hoard for which it gets no credit. Our only complaint is that the company could have easily returned more.
All in all, we continue to think Qualcomm is a cheap stock (trading at about 10.7 times the FY14, ending September, consensus of $4.86 excluding its net cash) riding a strong trend of smartphone growth.
Its licensing business, which makes up about 75% of its revenue, is a virtual printing press that is benefiting from the shift to 3G/4G smartphones, with emerging markets becoming a meaningful growth driver, led by China and Latin America.
Through its impressive patent portfolio, the company generates a huge revenue stream that, importantly, is derived based on a percentage of revenue, not units sold, in most cases.
Thus, Qualcomm receives a royalty every time a consumer switches from a 2G phone to a 3G (or 4G) smartphone, even if it isn't the one providing the chips. We rate the stock a "Buy" with a $78 target.
More from TheStockAdvisors.com
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The company debuts an adorably tiny video gadget and targets the lifestyle consumer.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.