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Qualcomm (NASDAQ:QCOM) Looks Like a Smarter Buy Already

Monday, November 16, 2020 | Steve Anderson
Qualcomm (NASDAQ:QCOM) Looks Like a Smarter Buy Already

If you've been feeling tempted to add some Qualcomm (NASDAQ:QCOM) to your portfolio in the last couple of weeks, then you're not alone. The stock has made some excellent advances in the last month, coming off a flat line around the $130 share price mark and climbing up to its current level of $144.94 as of this writing. Another upward bump hit in pre-market trading today as the company opened up some new lines of business and gave itself a little extra room to run.

Profitability Usually Gets a Hand This Way

The latest news for Qualcomm opened up a whole new path of business, even if it is somewhat limited. There were reports, as far back as last week, that Qualcomm was in line to land a new license which would allow it to sell some breeds of smartphone processors to firms in China, specifically Huawei. Now, those reports are proven correct, as the path is open to sell processors into the country.

This path doesn't come without boundaries, though, and perhaps the biggest of these is that Qualcomm can only sell 4G processors. Qualcomm describes its license as covering “a number of products,” and noted further that there were several other license applications that remained to be considered, but for right now, the product line available is pretty much all 4G-related.

No one's sure as yet just which 4G-related products are included in the package, but the reports suggest it should be enough to give Huawei some new bulk in its product lineup. After all, Huawei has used Qualcomm chipsets before—especially in its low- to mid-range smarphone lineup—so getting those chips back will take some pressure off the supply chain and give Huawei the chance to engage in some new marketing strategies. While it's a safe bet that the 4G chipsets won't be making their way into any big-name flagship models, there's still room for profitability here.

Beyond the Chinese Sales Wall

Better yet, Qualcomm isn't just making money on its older products, either. The company brought out four new investments for what it calls the “5G Ecosystem Fund,” a fund that seems devoted to bringing out and augmenting the infrastructure for 5G operations. Given that 5G is still a pretty limited proposition—especially compared to 4G and 4G LTE—such development will likely be vital to getting 5G rolling as hard as its potential customers would like. The companies funded as a result include Celona, which focuses on private mobile network development, and Azion, which offers edge computing operations to drive developments in low-latency applications as well as data analysis tools.

Qualcomm has already been shifting its operations to accommodate 5G; a few weeks ago, the company showed off earnings beats on the strength of 5G operations, and modified its quarterly reporting structure accordingly. By improving the number of use cases for 5G, it can help spur interest on more fronts and get more customers ready to sign on, which helps drive demand at the provider level for more infrastructure tools, like those offered at Qualcomm.

Still Looking Like a Buy in the Making

As for the analyst community's perspective, there's a reason Qualcomm is not only a “trending stock” but also a “most-upgraded stock” by the figures from our latest research. The current consensus stands at a “buy”, as it has for the last six months. Though convictions have waned slightly in the last month—it's added one more “hold” rating than it had this time last month—the price target has been ramping up the whole time, going from $88.72 six months ago to $144.16 today. With a string of boosted price targets coming in on November 5, as analysts from Piper Sandler to JPMorgan Chase & Co re-evaluating the company's likely potential, it's clear this stock has growth space to come.

The good news here is that Qualcomm is considering the future and coming out accordingly. It realizes it needs a healthy cash flow to live, just like any other business. The extra sales going into China should help on that front, and Huawei can put those older-model chipsets to work on penetration strategies, going after the lower-dollar but higher-density rural market, where customers may never have owned a smartphone before. It's also investing in the future, building up the 5G market and giving itself plenty of new sales opportunities going forward.

It would take a complete economic catastrophe to really hamstring Qualcomm right now, thanks to the diversification of its operations and its pragmatic approach. It's got today going nicely, and since tomorrow looks about as good as today, that's enough to make Qualcomm well worth a plan to buy.

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