Qualcomm has always been a growth stock, even if the share price didn't respond accordingly.
The latest earnings report shows why it is a growth stock:
The company has stopped its earlier practice of having no long term debt and instead has about the normal amount of debt (without being unduly risky) expected of growth stocks.
The company has made strategic acquisitions or collaboration agreements to secure access to intellectual property it didn't already own, such as the agreements with Nuvia and Veoneer.
The company continues its extensive investment in R&D to assure that it continues to be the technology leader in 5G and related technologies. Not only does the company excel in 5G performance, but it has a major input into the setting of standards for 5G and beyond, which is important in order to make its existing patents relevant for many years.
If the corporate tax is raised, as advocated by the Biden administration, it may reduce growth in earnings per share after taxes, but it will not reduce the increase in intrinsic value that stems from its intellectual property. Thus, even if the share price doesn't automatically reflect growth in various new markets, such as automotive, the intrinsic value of the company will increase, and the downside risk in the share price, for whatever reason, will be minimized. In fact, the proposed higher corporate tax will probably double the low tax rate, currently near 11%, that Qualcomm is currently paying, and more important, will INCREASE the public subsidy of new investments in R&D and related acquisitions by increasing the tax deductible amounts of investment.
Owing to its superior leadership position in wireless technology and its low downside risk, QCOM is not a bad stock to own in a period such as we are in now. Would you rather own QCOM or cryptocurrencies, or stocks such as GameStop? No question in my mind.
Art |
