is on the verge of a massive move.
The shares of this telecomm/semiconductor giant trade in a
formation. A wedge (blue lines) is a consolidation pattern that
occurs when a stock makes a series of lower highs and higher
lows. Since it's a consolidation formation, the breakout from the
wedge often favors the direction of the former trend. However,
the bias is minute.
QCOM had been in a positive trend prior to forming the wedge. So
investors should mildly expect the stock to break through
overhead resistance near $66 and begin another leg higher.
This chart shows the price of
shares along with an important wedge pattern to
The fundamental story also favors near-term price
provides wireless technology
to popular devices, including Apple's (
) iPhone and iPad.
Though the semiconductor industry is highly competitive, QCOM
continues to win big contracts. More importantly, its gross
margin has stayed above 62% during the past five years. This
suggests there is a healthy demand for QCOM products because
customers have been reluctant to bargain for lower prices.
These strong margins have resulted in robust EPS growth. In fact,
EPS has expanded in each of the past four years, going from $0.96
in 2009 to $3.59 in 2012.
Analysts expect that trend of EPS growth to continue, too. The
Street forecasts an EPS of $4.31 in 2013 and $4.78 in 2014. This
equates to a P/E ratio of 15 and forward P/E of 13.5.
The average P/E ratio for the communication equipment industry is
14.8, suggesting that QCOM is correctly valued. However, that
comparison is slightly misleading.
QCOM has a gross margin of 63% and an operating margin of 30%,
while the industry average is 35% and 1%, respectively. Given
QCOM's margin supremacy, the shares deserve to carry a higher P/E
ratio than the industry.
In addition to the bullish technicals and favorable fundamentals,
QCOM yields 1.6%. Moreover, it has zero debt.
QCOM may not overcome its all-time high (set in 2000) of $89.28
this year. However, I expect the shares to surpass $79 within the
next six months.
Equities mentioned in this article: QCOM, AAPL
Positions held in companies mentioned above: