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Technology Stocks : The New QUALCOMM - Coming Into Buy Range -- Ignore unavailable to you. Want to Upgrade?

To: manalagi who wrote (1016)	8/20/2007 1:03:04 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 9129

Paul and carranza2--I would suggest that the correct rate of return is NOT based on the current dividend as percent of initial cost of shares. Rather, it is simply the actual rate of return you would receive for an alternative investment. If you paid $10/share for QCOM (on the basis of its present price) and now sell for $37, you will have to pay tax on the capital gain (unless it's in a tax free or tax deferred account). Taking the after-tax gain and investing it in something else should provide a return that is better than holding QCOM year after year. But the return must be figured on the capital invested after paying all taxes and commissions on the sale of shares. With the shares hovering around $37, it is difficult for me to identify a better return at lower risk. The estimated return on QCOM is a combination of the dividend plus estimated gain in share price based on long term earnings growth--roughly 22 percent (or more) annually. One can set aside all the investment firm targets (e.g., running anywhere from $47 to $60) and concentrate on expected return on invested funds. Behind this approach is an important assumption: The average investor can't make a lot of money on QCOM by doing short term trades. The transaction costs are too high, the time needed to monitor price fluctuations is too great, and the information available for making decisions one way or the other isn't timely enough, compared to what is available to large scale investment firms. So I continue to look at QCOM as a long term investment that happens to be undervalued solely because of litigation outcome uncertainties. Behind this view is the assumption that QCOM, no matter what BRCM and the courts may think, still has the lion's share of patents. As long as manufacturers need those licenses, they will buy them and pay royalties. I can think of alternative investments that might provide a better cash flow from a higher dividend or interest rate. But those investments contain their own risks that may be much higher than the long term capital gain risk from QCOM. For example, one could buy bonds issued by a mortgage real estate investment trust. The 8 percent coupon is magnified by the fact that the bonds are now discounted to 60 percent of face value. With a maturity in six years, the combined return from interest and appreciation of the bond to 100 percent of face value as it approaches maturity, you get about a 20 percent return. But there are, of course, some risks . . . <vbg>!, particularly given the current state of the housing market. Art