Update Qualcomm (QCOM)
Qualcomm (QCOM) is doing all it can to support its stock price—but the second half still depends on getting margins higher.
On March 1 the company’s board of directors voted to increase the company’s quarterly dividend by 12% to 19 cents a share from the previous 17 cents a share. The new 76 cents a share annual rate is equal to a 2.03% yield on the noon price on March 2. (The increase is effective for dividends paid after March 28.)
The board also authorized a new $3 billion share buyback program. This replaces the company’s recently expired $2 billion program. (As is typical of most share buyback programs this one wound up buying back fewer shares—about $1.7 billion—than authorized.)
The stock has popped today on the news—up about 5% as of noon—since companies typically use dividend increases to signal their confidence in the company’s future. In this case I think investors are thinking that the company is saying that it believes that its call for a second half 2010 increase in average selling prices—which would bring higher margins—is accurate.
After Qualcomm badly missed Wall Street earnings estimates for its fiscal first quarter of 2010 and on January 27 told Wall Street to lower its expectations for the second quarter, I’ve got a definite “show me” attitude on this company. If management was so surprised a month ago, why should I decide that it can accurately predict the second half of the year on March 1?
The key issues are going to be average selling price and profit margins. In other words not how many chips the company sells or how many units sold by other companies it collects royalties on, but what the selling prices and profit margins are on those sales. Qualcomm has said that it expects 15-23% unit growth in calendar year 2010 and that the average selling price will climb in the second half of the year. If that increase in selling price doesn’t materialize or if it is smaller than the company now projects, Qualcomm will deliver another negative surprise when, after announcing fiscal second quarter earnings on April 27, it tells Wall Street what to expect for the third quarter and the rest of the fiscal 2010 year.
As of March 2, I’m going to act on that skepticism by giving the company less chronological rope. As of March 2, I’m cutting my target price to $44 from $52 and my time schedule to May from December 2010.
Full disclosure: I own shares of Qualcomm in my personal portfolio.
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Anyone still following Lynas?
taterbug,
I look at Lynas every now and then. I’m still waiting for the price to come down to $22 so I can buy it again. It is getting close.
I’ve had a limit order on Lynas of $21.75 for several months…it will get there. Heck, once my order gets filled I guarantee it will drop another 20% just so I have to kick myself for buying it too soon.
> Heck, once my order gets filled I guarantee it will drop another 20% just so I have to kick myself for buying it too soon.
I once read in an investment book: When you buy a stock, expect it to go down at first.
Purewater,
While I won’t recommend all of Jim Cramer’s advise, and I certainly won’t recommend his stock tips, he did have a good trading tip the other night: buy in pyramids. It works like this:
1. Make a small initial purchase. Then if it goes up, you make money anyway, even if it’s not as much as you could have invested.
2. If the stock goes down, buy a larger portion of it at a lower level. You lower your cost basis for the stock significantly that way, plus you increase your holding for a cheaper price.
3. You can keep increasing your purchases at lower levels, assuming you’re still confident the stock will eventually go up (and assuming there isn’t some horrible news about the stock).
Hence, you buy in “pyramids”.
EdMcGon…
If you use this “pyramid” strategy, would you wait until the stock has decreased 5%, 10% or more to add to your volume??
I am still holding Lynas and praying for a miracle. For a brief while I was actually above water and smiling. Not lately though. This stock is so thinly traded that it tends to move 5% a day or so in either direction.
STL,
Right now, I am setting my initial buy prices at something reasonably close to a stock’s most recent low (usually within the last 3-6 months). After that, I usually target the next dollar increment down, because I’m already lowballing the stock.
In this secular bear market, if a stock I purchase drops another 10% after I already bought it at a cheap price, I’m probably going to bail to cut my losses, since the market obviously doesn’t share my opinion on the stock. But I’m already ultra-conservative on the initial purchase price, so that hasn’t happened lately.
In a more secular bull market, 5%/10% drops would be good add-on points.
I did make one exception to my initial purchase price rule with my BRXX purchase yesterday, although I only bought 100 shares to start. It was more of a “dip my toe in the pool” purchase.
Just how many times to you add to your position as the stock goes lower? Sounds similar to a “system” for roulette I’ve heard more than one time.
EdMcGon…
Thanks a bunch for the lesson!
Would you consider adding to your position on BRF and/or AOD if they dropped 5%?? Just curious…
jandav,
It depends on WHY the stock is dropping. If it’s just following the overall market down, then you need to look at the macro reasons why the market is dropping. If you think those macro reasons are kneejerk market reactions to insignificant news (Jim had a good recent post on what you REALLY need to worry about), then you just ignore it and keep buying more.
Other than that, it’s really a judgement call. Just speaking for myself, after two extra purchases, I take a step back and review the stock again. Was I wrong in my initial assessment? Was there a piece of information I missed? If I still agree with my initial assessment, then I might go for a third purchase. Keep in mind, THAT will be a big purchase, which may unbalance my portfolio. More likely, I will probably decide to hold and wait. There will come a point where I will sell to cut losses, but that’s different for every stock (although 10% is roughly where it happens in this secular bear market).
Never forget one thing: Always check the news on a stock before you buy more (or any to begin with).
STL,
I already have a limit order in for more of AOD at $8, although it isn’t a pyramid. It’s more of a “see what I can steal from the market” order.
BRF would have to take a nosedive from it’s current price before I’d buy more (I last bought it at $43.10), which of course would be worrying anyway.
One last lesson for today. In a bear market, the key is the first part of the old market adage: “Buy low”. Don’t buy at all if you can’t buy low.
EdMcGon…
Love the old market adage…will hold onto that “sage” advice!
What do you think a good entry point would be on MXWL?? It’s hovering right around $13.60 now…
STL,
Since you asked…I wouldn’t touch MXWL with a 10-foot pole. No profits in the last 4 years? It even violates Jim’s rule about ROIC (what were you thinking Jim?).
However, if you REALLY want to buy it, I’d wait for $4.90. Seriously. The 52 week low is $4.90. As a cash bleeder, MXWL shouldn’t be bought for more than the 52 week low.
At the very least, wait for it to have at least ONE profitable quarter before buying it. Just one. But don’t hold your breath…
EdMc,
Jim’s roic rule has to do with a stock to own for the longterm. MXWL is not in that category, its a short to medium term play for company with huge upside (and downside)
For the tremendous amount of comments you post, I’m surprised you haven’t reckognized the fundamental difference between the ‘picks’ and ’50′ portfolios.
What does “ROIC” stand for??
Please disregard my earlier post…I found out what ROCI stands for!
Jim Crametr in his own words:
Don’t Buy All at Once
http://www.thestreet.com/static/rules3.html
BenWobbles,
While Jim does say that ROIC is a “crucial” statistic for long term investing, he does NOT say it should be ignored in short term investing. In his words:
“Return on invested capital tells investors how good a job a company is doing at investing their money in profitable opportunities. It tells investors how good the company is at finding those opportunities. And—this is crucial for long-term investors—it indicates how good a job a company is doing at compounding investors’ money be re-investing profits at a high or low rate of return.”
Key words: “[ROIC] tells investors how good the company is at finding [profitable] opportunities.”
Generally speaking, a company bleeding cash does NOT make a good investment over either short or long terms. One exception would be relatively new companies with a good business plan in a “wide moat” sector/industry (i.e. Lynas Corporation). Another exception would be a company which is going through a temporary rough spot which could not have been anticipated(economic factors outside of it’s control are causing it to suffer temporary losses). Jim may be able to provide more exceptions. But as a general rule, it’s best to avoid cash bleeders. ESPECIALLY in a secular bear market.
MXWL is not “moated” (there are other ultracapacitor manufacturers), and they’ve been bleeding cash for too long to call it an unfortunate coincidence.