Time to hang up on Qualcomm
Selling shares of the company as we head into a quarterly earnings announcement.
Last quarter, Qualcomm's shares dropped 14.3% -- or $6.72 a share -- on Jan. 28, the day after the company released first-quarter earnings and announced guidance for future quarters. In its guidance, Qualcomm executives predicted lower-than-expected revenue and earnings for the second quarter.
Since then, the company has restored most of the decrease it predicted three months ago. But Qualcomm has a record of delivering earnings surprises -- and the surprises aren't always pleasant.
But that's not the reason I'm selling these shares. My read of the technology sector shows that cell phone selling prices -- and hence the selling prices for the things that go into cell phones, such as Qualcomm's chips -- will remain under pressure well into 2011. (This isn't to say that cell phone prices will increase in 2011; it's just that I don't see prices breaking their downward trend before that.) That will keep pressure on margins for just about every company in the sector.
On the other hand, I see margins improving in other parts of the technology sector. Intel (INTC), for example, raised its forecast for gross margins for 2010 to a range of 62% to 66%. (Intel is already a member of the Jubak's Picks portfolio. For more on Intel's recent earnings report, see this post).
And that means I think you can find better technology stocks than Qualcomm to buy right now. So, I'm selling this position with an 8.1% loss since I added it to Jubak's Picks on July 15. I'll have a new technology buy to replace Qualcomm Tuesday.
At the time of this writing, Jim Jubak planned to sell his personal position in Qualcomm in three days.
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Why are stronger numbers considered bad news? Investors are worried about the impact on inflation and interest rates.
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