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3 Reasons To Buy Qualcomm – And 1 Not To

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Today, I want to show you 3 Reasons To Buy Qualcomm – And 1 Not To.

Qualcomm (QCOM) is a leading developer and licenser of wireless technology… And it also designs, manufacturers, and sells microchips for smartphones.

The company is already a leader in these arenas due to its patents and competitive advantages.

And it should remain so during the transition to 5G that’s at the beginning stages of being built now.  I’ll talk about this more below.

The company is based in San Diego California.  It has a $129.5 billion market cap.  And it also pays a 2.4% dividend.

This is reason #1 to buy Qualcomm – because of its dividend.

Qualcomm’s 2.4% Dividend

Over the last decade Qualcomm’s paid out a total of $14.22 per share in dividends.

At today’s share count of 1.165 billion shares that’s equal to $16.6 billion paid out to shareholders in the last decade.

Plus, in the last decade it grew its dividend 249% from $0.72 per share in 2010 to $2.51 per share now.  This is an annual dividend growth rate on average of 24.9% per year.

These dividend payments will provide you a solid retirement income in normal times if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

Both help you earn higher returns over time and will especially help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns huge profits and cash flows.  Which is reason #2 to buy Qualcomm.

Qualcomm Earns High Profits

Over the last decade it earned an average operating income margin of 24.8% per year.

I look for anything above 10% on a consistent basis so Qualcomm surpasses this number.

Why 10%?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10% over long periods of time.

This makes Qualcomm a great operating business.

But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 24.2% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.

Qualcomm surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.

These profits also allow it to continually reinvest in operations.  And to pay you a large and growing dividend as well.

Its large profits and cash flow and growing dividend payments over time make Qualcomm a safe income play in whatever is to come in the next few months or years.

But these profits also allow another layer of safety because Qualcomm’s business should be largely protected from negative effects of the coronavirus… Which is reason #3.

The Coronavirus Won’t Harm Qualcomm

People may stop paying their mortgages.

They may stop paying their credit cards.

They may stop paying their vehicle loans.

And they may stop paying their student loans.

Because of the mass unemployment caused economic issues we’re now dealing with; people may stop paying these things if they need to.

But businesses and individuals won’t stop using smart phones or the internet.

Especially with more people working from home than ever before… And this likely to continue for the foreseeable future with the pandemic still raging in the US and worldwide.

Another factor that will help Qualcomm survive and thrive during this pandemic is the 5G build out.

This network is being built out worldwide right now and once operational in your area will bring you faster, more reliable, and more stable internet.

Requirements for working at home or taking classes online like we’re seeing today.

And this trend won’t just last for however long this pandemic lasts.

The 5G build out will last 1o to 20 years or more…

We’re still in the infancy of this. And as one of the major leaders in 5G technology Qualcomm and its shareholders will be one of the largest beneficiaries.

These things combined give enormous stability to the company in these highly uncertain times.  And it also means you should expect Qualcomm to continue earning enormous profits and cash flows.

But what about its valuation?  Is it cheap? 

Qualcomm Is Not Cheap

This is the 1 reason to avoid Qualcomm stock for the time being…

With the markets at or near all-time highs you’d expect a fantastic stock like Qualcomm to be selling at an enormous valuation.

And it is.

As of this writing its P/E is 45.9.

Its P/CF is 23.9.

And its forward P/E is 18.9

On all three metrics I look to buy investments below 20 to consider them undervalued.

This shows that Qualcomm is currently overvalued… By a wide margin.

This means Qualcomm stock does not offer you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.

Because of Qualcomm’s overvaluation there is a lack of a margin of safety here which makes the investment riskier.

Conclusion

If you’re looking for a solid, safe, stable, dividend paying, and enormously profitable investment to protect your investment portfolio – consider investing in Qualcomm… But only when its stock is cheaper.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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