You Win, Qualcomm
Kenneth A. Toudouze, CFA
Apr 5 2000
Our never-popular short stance on Qualcomm [QCOM]
is over. We give up. For all our rantings about its
overvaluation, the stock has managed to stay within a
$120-$150 per share trading range over the past
couple months. And despite opportunities to cover our
short with a profit, we elected to stick it out. As a
result, we are covering our short and suffering a loss.
We are in a select group of people who have lost money
on Qualcomm in the past year.
The three biggest reasons we are covering our short
position are:
The resiliency of the stock during these volatile
times
Our recommendation of Oracle, which trades at
similar forward price/earnings multiples
The expectation that Qualcomm will make nearly
$1bn in profits in calendar year 2000.
According to Baseline, only 119 public companies in its
database of 9,844 are forecast to post earnings of $1bn
this year. We consider this to be pretty select company.
(For those with inquiring minds, 18 of the 119 qualify as
technology companies.)
The end result is that it is difficult to reverse the
Qualcomm momentum, despite the overvaluation
condition. Because earnings do matter, companies that
make lots of money will be considered safe havens
if volatility increases. Therefore, Qualcomm will retain its
current traction.
Qualcomm?s main businesses remain on track for the
quarter, in line with the lowered expectations that came
during the first quarter conference call. The
company's high-profile CDMA deal with China Unicom is
underway and has the potential to be huge for the
company. We expect choppy news on this front in the
months ahead, but the reality is that this could become
a significant positive for the company. Qualcomm will
report 2Q00 results on April 18, and we anticipate
further color on this subject then.
We?ll revisit the company after the second quarter
conference call and evaluate our position then.
FWD this page to: |
