By the numbers
By most metrics, Qualcomm will look like a superior investment to the casual observer.
- Qualcomm sports $6.4 billion if trailing free cash flows. Over the same period, Micron instead burned $2.4 billion of cash.
- Micron's sales, margins, and income vary wildly over time. Qualcomm's are more stable and sane.
- Some of Micron's profit metrics occasionally dip into red ink, making it more difficult to run simple valuation tools on the stock. Qualcomm rarely follows suit.
It adds up to a safer bet on a more predictable business. Heck, Qualcomm even pays a quarterly dividend, yielding 3.4% at today's prices. It's the risky technology stock for investors who normally don't touch risky technology stocks.
That's all fine, but it's not my personal style of investing. I have a real-money stake in Micron, but none in Qualcomm, because the memory maker is drastically undervalued.
Micron's chosen field of business happens to be extremely cyclical. As mentioned above, Samsung sometimes starts price wars over DRAM and NAND memory chips, feeding low-cost components into its own consumer electronics operations for a few quarters. When this happens, Micron stumbles. But Micron has a cushy cash balance to fall back on, and it's likely to pick up a few of its dying rivals on the cheap as they go bankrupt.
So, you can pick up Micron shares when times are hard and the stock looks cheap, like now. Then Samsung lays off the memory-chip price wars again, the cycle turns, and Micron investors pocket some serious cash. When this exact scenario played out between 2012 and 2014, Micron's share prices increased more than sixfold in 24 months.
And now we're back to a tough street price environment and low, low Micron share prices.
The company is valued at just 1.2 times book value, meaning investors would barely break even if Micron stopped doing business and liquidated all of its assets today. Qualcomm's price-to-book ratio stands at 3.0, and that's still low in comparison to many other semiconductor giants.
It's the same story if you look at enterprise value over EBITDA profits, price to sales, and other measures against fundamental financial health. Micron is priced for total disaster, but it actually remains poised to deliver the goods once this downturn passes.
That's my investing thesis for Micron, and I expect to be handsomely rewarded in one to three years. On that time scale, the safer Qualcomm bet seems unlikely to beat my chosen champion.
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Anders Bylund owns shares of Micron Technology. The Motley Fool is taking the other side, as the company both owns shares of and recommends Qualcomm. Try any of our Foolish newsletter services free for 30 days .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
