February 3, 2013 in Business

Qualcomm’s diversity, growth make the stock hard to ignore

Universal Uclick
 
Associated Press photo

Microsoft CEO Steve Ballmer, left, and Qualcomm CEO Paul Jacobs talk about Windows-based products using Qualcomm technology at the Consumer Electronics Show keynote address on Jan. 7 in Las Vegas.
(Full-size photo)

If you want to profit from the growth of smartphones and related technologies, take a look at Qualcomm (Nasdaq: QCOM). Its technology is found in iPhones and many other devices, and while some worry about a possible slowdown in iPhone sales, there’s much more to Qualcomm, including plenty of sales to other device-makers.

For starters, it’s in strong financial shape, with 2012 revenue surging by 28 percent over year-earlier levels to $19 billion and net income growing by 43 percent. A leader in smartphone processors, Qualcomm has more than $26 billion in cash and investments. Considering how much it put into research and development in 2012 (about $3.9 billion), that’s a pretty good stockpile.

The company also just launched its most powerful version of Snapdragon processors, which will be in smartphones and tablets later this year. So between current mobile processors and future mobile processors, Qualcomm has much more going on in the mobile industry than just iPhone components.

Qualcomm has one more thing that investors need to consider: its valuable patents. With thousands of CDMA (Code Division Multiple Access) patents, Qualcomm earns 3 percent to 5 percent off of every CDMA-enabled mobile device sold. Last year, its licensing revenue grew by 16 percent. (The Motley Fool owns shares of Qualcomm.)

Ask the Fool

Q: I heard that American Airlines’ parent, AMR, reported a profit. Should I invest in it? – C.M., Ashland, Ky.

A: Airlines are a notoriously difficult industry, featuring challenges such as fare wars, volatile fuel prices, labor issues, weather complications, costly empty seats and more. Southwest Airlines has been a rare success – but its history is turbulent, too. AMR, meanwhile, is currently in bankruptcy protection.

Super-investor Warren Buffett has said that “… if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

Q: What’s the difference between unit investment trusts and mutual funds? – H.G., Rutland, Vt.

A: Mutual fund managers invest in assets (such as stocks or bonds) according to stated sets of objectives. Shares are issued and redeemed on demand at a specific net asset value determined at the end of each trading day (based on the total market value of the fund’s holdings). The number of shares is not fixed. If many people want to buy in, the fund company will issue more shares.

Meanwhile, a unit investment trust (UIT) invests in a relatively fixed portfolio of investments. These are held until the trust is liquidated at a predetermined date in the future. Investors who want to trade shares of a UIT before it matures can often do so in the secondary market.

Unlike a mutual fund, UIT share prices in the secondary market may be priced above or below the net asset value of the trust’s actual holdings. When you buy shares of UITs, you typically pay a sales fee, or load, of around 4 or 5 percent; many mutual funds carry no sales load at all.

My dumbest investment

When I was a 1952 engineering grad, I was dealing with an Omaha developer. I just had to have a newly restyled 1953 Studebaker car then, and he thought the new model would turn the ailing company around. (He figured, “How much below $7 could the stock drop?”) I bought the car and he bought the stock. Over the next few years, I watched his $7,000 investment shrink as he watched me try to get my lemon auto fixed. I had a loser auto, he had a loser stock. – J.P.G., Santa Rosa, Calif.

The Fool responds: Companies with good products can still struggle and sometimes lose. And those with bad products can hang on for a while. Ideally, seek companies with great products, strong competitive positions and positive growth trends. Never think a stock can’t go lower.

In the early 1950s, Studebaker was struggling with high costs, quality problems and price wars between Ford and General Motors. It ended up merging with Packard, but struggles continued.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus