in the long run, naturally, all the hype will fall by the wayside and economic reality will prevail. as i forecast last December, when QCOM was over 60, i did not think QCOM would outperform a 10yr government bond. it was an easy call then (for me, if not for those with long positions). now, with the pro forma set to an earnings "yield" of around 3%, i still have my doubts (although QCOM's chances are better now that it has had a 50% haircut since my last call, which was of course heavily criticized by the more vehement of the true believers).
my 3-dollar calculator still says 3% is less than 6%, unless one applies some pretty hefty growth fuel to the 3% coupon. basically, if QCOM doubled its earnings, then its yield would be on par with sovereign paper yielding 6%. if it tripled earnings, then the yield would be 9%, which would be imho a satisfactory risk premium to the sovereign. so one question is, how long will it take for the earnings yield to reach 6%, and then 9%? and another question is, will the yield reach that level through increased earnings, or decreased share price? and if a combination of both, what is the ratio between them? |
